United States v. Sum of $70,990,605 , 90 Fed. R. Serv. 3d 1877 ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Plaintiff,
v. Civil Action No. 12-CV-1905 (RDM-AK)
SUM of $70,990,605, et al.,
Defendants in rem.
MEMORANDUM OPINION
Pending before the Court are “Claimant Afghanistan International Bank’s Motion for an
Order to Compel the Government to Respond to Pending Discovery and For an Enlargement of
Time To Respond to The Government’s Motion to Strike” (“Motion”) [97] and “United States’
Motion for a Protective Order Against Discovery Propounded by Afghanistan International Bank
(“AIB”) Until the Resolution of Dispositive Motions” (“Protective Order”) [105]. Chief Judge
Roberts, who was the initial trial judge assigned to the case, referred these two motions to the
undersigned on July 16, 2014 (Minute Order, July 16, 2014), and the Court held a hearing on
both motions on October 28, 2014. For the reasons set forth in this memorandum opinion, the
undersigned will grant in part and deny in part the Motion to Compel and deny the Protective
Order.
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I. Background
The underlying case stems from a civil action in rem for the forfeiture of the defendant assets
pursuant to 18 U.S.C. §§ 981(a)(1)(C), 981(k), and 984. The United States filed its Second
Amended Verified Complaint for Forfeiture in rem (“Complaint”) [15] seeking the forfeiture of
the defendant assets. The United States alleges that these assets are the proceeds of a conspiracy
to commit wire fraud in violation of 18 U.S.C. § 1343, through which Mr. Hikmatullah Shadman
and his associates allegedly obtained more than $77 million in payments from the United States.
(Complaint ¶ 10).
Both AIB and the United States state in their pleadings that a total of $10.1 million were
seized from AIB’s interbank 1 account at Standard Chartered Bank in New York. (Motion at 2;
Complaint at ¶ 6(a)). The initial seizure from the interbank account occurred on May 10, 2013,
when the Department of Justice served a Warrant of Arrest in rem seizing $1.5 million from the
account. (Complaint ¶ 60; Afghanistan International Bank’s Verified Claim of Interest in
Defendant Property (“Claim”) [41] at 2-3). On May 24, 2013, the Department of Justice served
two warrants on the interbank account for seizures in the amount of $3.6 million and $5 million.
(Complaint ¶¶ 61, 76; Claim at 3).
AIB stipulated that it had $4,330,287.03 on deposit in accounts controlled by or for the
benefit of Mr. Shadman at the time of the seizures. (Stipulation for Return of Seized Funds
(“Stipulation”) [25] at 5). On September 4, 2013, pursuant to the Stipulation, the United States
released to AIB $5,769,712.97, the difference between the $10.1 million that was originally
seized and the amount on deposit. (Id.) On October 16, 2013, AIB filed its verified claim of
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The statute defines “interbank account” as “an account held by one financial institution at another financial
institution primarily for the purpose of facilitating customer transactions.” 18 U.S.C. §§ 981(k)(4)(A), 984(c)(2)(B).
That is, foreign banks use these correspondent accounts to offer services to customers in locations where the banks
are not physically located.
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interest to $4,330.287.03 plus interest seized from the AIB interbank account located at Standard
Chartered Bank in New York. On May 30, 2014, AIB served the United States with its First Set
of Interrogatories and Request for Production. (Motion at 2). In its Opposition, the United
States stated that it received the discovery request on or about June 10, 2014. (United States
Opposition to Putative Claimant Afghanistan International Bank’s Motion for an Order to
Compel the Government to Respond to Pending Discovery and For an Enlargement of Time to
Respond to the Government’s Motion to Strike (“Opposition”) [106] at 2, n.1). On July 2, 2014,
the United States moved to strike AIB’s claim to the seized funds, arguing that AIB had no
standing to challenge this forfeiture action. (United States’ Motion to Strike Claim of
Afghanistan International Bank (“Motion to Strike”) [93]).
Chief Judge Roberts determined that the Motion to Strike would be resolved after the
disposition of the Motion that is currently before this Court; Judge Moss, the current trial judge,
has kept with that determination. Therefore, the Motion to Strike has not been fully briefed, and
will not be fully briefed, until the resolution of the Motion to Compel. The Motion to Strike
determination will resolve whether or not AIB has standing, and therefore the right to continue
participating in this litigation. The undersigned must balance AIB’s right to discovery to
establish that standing with the possibility of harm to the United States.
While the undersigned is not charged to determine whether or not AIB has standing to
contest this forfeiture action of the defendant assets, the narrow scope of discovery to which AIB
is entitled implicates the issues of standing. Understanding the statutory standing provision is
critical to this Motion’s analysis, as AIB is entitled to any jurisdictional discovery that could help
either establish itself as an “owner” or satisfy one of the two aforementioned exceptions to the
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ownership provision. Therefore, some discussion of standing and its effect on the two motions
currently pending before the undersigned is warranted.
A claimant must establish two types of standing in a civil forfeiture action: Article III
standing and statutory standing.
The term ‘statutory standing’ relates to a claimant's ability to show that he has satisfied
whatever statutory requirements Congress has imposed for contesting a civil forfeiture action
in federal court, while ‘Article III standing’ [or ‘constitutional standing’] relates to the
claimant's ability to show that he has a sufficient interest in the property to satisfy the case-
or-controversy requirement of Article III of the Constitution.
Stefan D. Casella, Asset Forfeiture in the United States: A Treatise on Forfeiture Law, § 9–4 at
326 (2006).
The issue of Article III standing is uncontested; the United States has only argued, in both its
briefings and at the October 28, 2014 hearing, that AIB lacks statutory standing. Therefore, the
main issue with respect to standing is whether or not AIB can establish statutory standing under
981(k), as this was the authorizing statute that allowed the United States to execute arrest
warrants in rem against the funds in the AIB interbank account.
18 U.S.C. § 981(k)(3) states that “[i]f a forfeiture action is instituted against funds restrained,
seized, or arrested…the owner of the funds deposited into the account at the foreign financial
institution…may contest the forfeiture by filing a claim under section 983” (emphasis added).
The ability of AIB to establish statutory standing, therefore, turns on its ability to establish itself
as an owner, the parameters of which are put forth in § 981(k)(4)(B). AIB disagrees, and argued
at the October 28, 2014 hearing that the issue of “ownership” under the statute is part of the
innocent owner affirmative defense, distinct from the issue of statutory standing. However, the
undersigned reads the statute as requiring AIB to establish itself as an owner in order to have
statutory standing, and this limits the jurisdictional discovery to which AIB is entitled at this
point in the litigation.
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Section 981(k)(4)(B)(i)(I) defines the term “owner” by reference to 18 U.S.C. § 983(d)(6).
Section 981(k)(4)(B)(i)(II) makes clear that an owner “does not include either the foreign
financial institution…or any financial institution acting as an intermediary in the transfer of the
funds into the interbank account.” This would, on its face, exclude AIB—a foreign financial
institution—unless it can satisfy one of the two exceptions to this definition of “owner” that
excludes foreign financial institutions.
First, a foreign financial institution may be considered the “owner” of the funds only if the
basis of the forfeiture action is wrongdoing committed by the foreign financial institution.
Section 981(k)(4)(B)(ii)(I). Second, if the foreign financial institution establishes, by a
preponderance of the evidence, that prior to the restraint, seizure, or arrest of the funds, it
discharged all or part of its obligation to the prior owner of the funds, it “shall be deemed the
owner of the funds to the extent of such discharged obligation.” Section 981(k)(4)(B)(ii)(II).
Absent an exception, however, § 981(k)(4)(B)(i)(I) makes clear that the owner of the
deposited funds is the individual who owned the funds at the time that they were deposited into a
foreign financial institution. United States v. Union Bank for Savings & Investment (Jordan) 487
F.3d 8, 17 (1st Cir. 2007). By virtue of the statute, AIB cannot be an owner unless it establishes
that one of the two exceptions apply in this situation—a determination that is ultimately for
Judge Moss.
II. Standard of Review
A. Discovery, Motion to Compel, and Interrogatories
Pursuant to Rule 37, a party propounding discovery or taking a deposition may seek an
order compelling responses when an opposing party has failed to respond or has provided
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incomplete responses. Fed. R.Civ.P. 37(a)(3)(B). “The proponent of the motion to compel bears
the initial burden of proving that the information sought it relevant.” Alexander v. Fed. Bureau
of Investigation, 186 F.R.D. 154, 159 (D.D.C. 1999). A trial court has considerable discretion
over discovery matters. United States v. Krizek, 192 F.3d 1024, 1029 (D.C. Cir. 1999). “[A]
district court’s decision to permit or deny discovery is reviewable only for an abuse of
discretion.” Food Lion, Inc. v. United Food and Commercial Workers Int’l. Union, 103 F.3d
1007, 1012 (D.C. Cir. 1997) (citation omitted).
Federal Rule of Civil Procedure 33(b) requires that parties answer interrogatories
separately and fully in writing under oath or state the reasons for their objections and answer to
the extent the question is not objectionable. Fed. R. Civ. P. 33(b). Fed. R. Civ. P. 26 authorizes
discovery “regarding any non-privileged matter that is relevant to any party’s claim or defense.”
Fed. R. Civ. P. 26(b)(1); Denture Cream Products Liability Litigation, 292 F.R.D. 120, 123
(D.D.C. 2013). “Relevant information need not be admissible at the trial if the discovery appears
reasonably calculated to lead to the discovery of admissible evidence.” Fed. R. Civ. P. 26(b)(1).
“A showing of relevance can be viewed as a showing of need; for the purpose of prosecuting or
defending a specific pending civil action, one is presumed to have no need of a matter not
‘relevant to the subject matter involved in the pending action.’” Friedman v. Bache Halsey Stuart
Shields, Inc., 738 F.2d 1336, 1341 (D.C. Cir. 1984) (citing Fed. R. Civ. P. 26(b)(1)).
Discovery of relevant materials includes “any matter that bears on, or that reasonably
could lead to other matters that could bear on, any issue that is or may be in the case.”
Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) (citation omitted); McPeek v.
Ashcroft, 212 F.R.D. 33, 34 (D.D.C. 2003) (whether information is relevant is “a function of the
relationship of the data to the [ ] central accusations of [the] lawsuit.”) “No one would suggest
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that discovery should be allowed of information that has no conceivable bearing on the case.”
Food Lion, Inc. 103 F.3d at 1012 (quoting 8 Wright, Miller & Marcus, Federal Practice and
Procedure: Civil 2d § 2008, 105-06 (1994)). Once a relevancy objection has been made, the
party seeking discovery has to demonstrate that the information sought to be compelled is
discoverable. See Alexander v. Federal Bureau of Investigation, 194 F.R.D. 316, 325 (D.D.C.
2000) (citation omitted).
Pursuant to Fed. R. Civ. P. 26(b)(2)(C), the court may limit discovery on motion or on its
own initiative, if it determines that the “burden or expense of the proposed discovery outweighs
its likely benefit, taking into account the needs of the case, the amount in controversy, the
parties’ resources, the importance of the issue at stake in the litigation, and the importance of the
proposed discovery in resolving those issues.” Tooley v. Napolitano, 556 F.3d 836, 841 (D.C.
Cir. 2009); see Hammerman v. Peacock, 108 F.R.D. 66, 67 (D.D.C. 1985) (Rule 26(b)(1) was
amended to give the court the power, sua sponte, to limit discovery.) see also Smith v. Cafe
Asia, 246 F.R.D. 19, 21-22 (D.D.C. 2007) (the trial court balances competing concerns when
determining discovery matters).
B. Protective Orders
Fed. R. Civ. P. 26 authorizes discovery “regarding any non-privileged matter that is
relevant to any party’s claim or defense…” Fed. R. Civ. P. 26(b)(1); Denture Cream Products
Liability Litigation, 292 F.R.D. at 123. Rule 26(c), however, further provides that:
Upon motion by a party…and for good cause shown, the court…may make any order
which justice requires to prevent a party or person from annoyance, embarrassment,
oppression, or undue burden or expense.
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This rule “confers broad discretion on the trial court to decide when a protective order is
appropriate and what degree of protection is required.” Seattle Times Co v. Rhinehart, 467 U.S.
20, 36, 104 S.Ct 2199, 81 L.Ed 2d 17 (1984). The court may “limit the conditions, time, place,
or topics of discovery.” Burka v. United States Dep’t of Health and Human Servs., 87 F.3d 508,
517 (D.C. Cir. 1996). As noted, the district court has wide discretion in managing discovery, and
with respect to a protective order issued pursuant to Rule 26(c), the Court is to “undertake an
individualized balancing on the many interests that may be present in a particular case.”
Klayman v. Judicial Watch, Inc., 247 F.R.D. 19, 22 (D.D.C. 2007) (quoting Diamond Ventures,
LLC v. Barreto, 452 F.3d 892, 898 (D.C. Cir. 2006)).
The party seeking the protective order “bears the burden of making the showing of good
cause contemplates by the rule.” Alexander v. Fed. Bureau of Investigation, 186 F.D.R. 71, 75
(D.D.C. 1998). In order to do this, the party “must articulate specific facts to support its request
and cannot rely on speculative or conclusory statements.” Friends of the Earth v. United States
Dep’t of the Interiori, 236 F.R.D. 39, 41 (D.D.C. 2006) (quoting Low v. Whitman, 207 F.R.D. 9,
10-11 (D.D.C. 2002)).
III. Analysis
A. AIB’s Motion to Compel
For the reasons stated above, the undersigned reiterates that the only discovery to which
AIB is entitled at this juncture is jurisdictional discovery. Since AIB must establish itself as an
“owner” under 18 U.S.C. § 981(k)(4)(B) in order to participate in this litigation, only information
that speaks to this issue is relevant at this time.
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1. Interrogatories 1-11, 16, 17
The Court finds that Interrogatories 1-11, 16, and 17 are premature; therefore, the United
States does not have to answer.
During the October 28, 2014 hearing, AIB stated that interrogatories 1-4 and 16 and 17
were necessary to complete its Opposition to the Motion to Strike and to flesh out AIB’s “ability
to defend itself.” (Oct. 28, 2014 Hearing). Specifically, AIB argued that these interrogatories
address two issues: AIB’s ability to offset the seizure and AIB’s desire to prepare for a possible
constitutional challenge to § 981(k) on the grounds that it violates Procedural Due Process. AIB
argues that it requires interrogatories 1-4, 16, and 17 in order to develop this argument fully in its
briefing.
AIB is allowed to raise a constitutional challenge to the statute in its Motion to Strike if it so
chooses. AIB has not, however, put forth the issue in any of its briefing; so far, it only
speculates that it might raise the issue in the future. Since it has not yet raised the issue, the
undersigned finds that these interrogatories are premature. As to whether AIB may offset the
seizures, this is a separate inquiry from statutory standing—AIB has indicated as much in its
pleadings. (Motion at 5) (“Regardless of whether [the ability to offset the seizure] [is] necessary
to evaluate the Government’s motion [to strike], AIB respectfully submits that [it is] necessary to
evaluate its Constitutional challenge to that motion.”).
Therefore, for the above stated reasons, interrogatories 1-11, 16, and 17 are premature
and the United States does not have to answer.
Interrogatory 5 involves the question of ownership, but not the type of ownership that
would assist AIB in its quest to establish statutory standing. Specifically, interrogatory 5 asks
for any communications between the United States and Standard Chartered Bank New York as to
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the identity of the owner(s) of those accounts and the funds held therein. Presumably, AIB wants
to show that the seized funds are the property of AIB and not the property of Mr. Shadman or
any customer in Afghanistan, as AIB attested in its Verified Claim of Interest. (Claim at 4).
However, the entire purpose of an interbank account, as explained previously, is for banks to
facilitate services in locations where they are not physically present. Section 981(k)(1)(A)
makes clear that if funds subject to civil forfeiture are deposited into a foreign financial
institution, and that same foreign financial institution has an interbank account in the United
States,
[T]he funds shall be deemed to have been deposited into the interbank account in the
United States, and any restraining order, seizure warrant, or arrest warrant in rem
regarding the funds may be served on the covered financial institution, and funds in the
interbank account, up to the value of the funds deposited into the account at the foreign
financial institution.
In other words,
[I]t is the deposit of forfeitable funds into an account at a foreign bank, rather than the
continued existence of forfeitable funds in that account, that triggers the forfeitability of
an equivalent amount in the foreign bank’s interbank account. The funds in the interbank
account are forfeitable even if those funds have no connection to the forfeitable funds
deposited in the foreign account.
Union Bank, 487 F.3d at 15-16.
Therefore, it is immaterial who the actual owner(s) of the funds in the interbank account
may be, so long as the amount forfeited reflects the actual amount on deposit from the Claimants
in this case. Since interrogatory 5 does not further the ownership analysis under 981(k)(4)(B), it
is irrelevant to the issue of standing, and the United States does not have to answer.
Interrogatory 6, as AIB admitted, goes to the merits of the case and, as AIB characterized
it, addresses the ability of the government to maintain this civil forfeiture action. This
interrogatory has no bearing on standing and, therefore, is premature.
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Interrogatories 7 and 8 are standard interrogatories as precursors for the forfeiture trial if
and when that trial goes forward, but premature at this juncture.
Interrogatories 9, 10, 11 are interrelated and address the “innocent owner” affirmative
defense. The district court has held that establishing oneself as an “innocent owner” is not
necessary in order to have standing, and that any suggestion to the contrary improperly conflates
the requirements of standing with the merits of an affirmative defense. United States v. All
Assets Held at Bank Julius Baer & Co., Ltd., 959 F.Supp. 2d 81, 117-18 (D.D.C. 2013). Any
interrogatories that seek to establish AIB as an innocent owner, therefore, are premature.
If Judge Moss denies the United States’ Motion to Strike, AIB will have the opportunity
to renew its Motion to Compel on these interrogatories. In the view of the undersigned,
however, AIB will be able to fully and fairly prepare its opposition to the United States’ Motion
to Strike without the answers to these interrogatories.
2. Interrogatories 12-15
Interrogatories 12-15 could relate to the issue of standing; therefore, the United States
must answer.
Interrogatories 12 and 13 relate to the second possible exception under section
981(k)(4)(B)(ii)(I). At the October 28, 2014 hearing, AIB categorized these interrogatories as
fundamental to standing, arguing at the hearing that if the United States answered “yes” to
interrogatory 12, AIB would “by definition have standing.” These two interrogatories have
bearing on the first exception in section 981(k)(4)(B)(ii)(I), and, therefore, they could be
pertinent.
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Interrogatories 14 and 15 also relate to an exception to the definition of “owner” found in
Section 981(k)(4)(B)(ii)(I). If the United States accuses AIB of wrongdoing, that might allow
AIB to establish statutory standing. As these two interrogatories have bearing on the first
exception found in the statute, the United States must answer.
Therefore, for the reasons set forth above, interrogatories 12-15 are appropriate for the
United States to answer, so that AIB may prepare its opposition to the United States’ Motion to
Strike.
3. Requests for Production
Request for Production #1 is overly broad and redundant, and it is denied. Interrogatories
12 and 14 all have requests for supporting documentation, which are encompassed in
interrogatories 13 and 15. Therefore, any documents identified in the United States’ responses to
interrogatories 12 and 14 will necessarily be produced, which renders this request for production
redundant.
Request for Production #2 is premature and, therefore, denied.
B. United States’ Protective Order
In its memorandum in support of its Protective Order, the United States urges that
“discovery is inappropriate while a dispositive motion—one that will thoroughly dispose of
AIB’s claim—is pending” and that “it would be an undue burden for the United States to respond
to AIB’s discovery request” prior to the resolution of the Motion to Strike. (Protective Order at
7). While it is true that civil discovery can be stayed as premature during the pendency of
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dispositive motions, this Circuit has held that a district court must weigh several factors before
deciding whether or not to issue a protective order under Rule 26.
The decision to limit or deny discovery by means of a Rule 26 protective order rests on
balancing of several factors: the requester’s need for the information from this particular
source, its relevance to the litigation at hand, the burden of producing the sought-after
material; and the harm which disclosure would cause to the party seeking to protect the
information.
Burka v. Dep’t of Health and Human Servs., 87 F.3d 508, 517 (D.C. Cir. 1996) (internal citation
omitted).
Consideration of these factors makes clear that interrogatories 12-15 are relevant to
AIB’s ability to brief the Motion to Strike and to establish statutory standing. Responding to
interrogatories 12-15 does not appear to the undersigned to impose a burden to the United States.
Since the United States’ Motion to Strike—the dispositive motion related to both AIB’s Motion
to Compel and the United States’ Motion for a Protective Order—is predicated upon the notion
that AIB lacks the necessary statutory standing to become a claimant, and any interrogatories
related to the issue of standing are relevant. See Coastal States Gas Corp. v. Dep’t of Energy, 84
F.R.D. 278, 282 (D. Del. 1979) (“Discovery should precede consideration of dispositive motions
when the facts sought to be discovered are relevant to consideration of the particular motion at
hand.”) (citations omitted).
Granting the United States’ Protective Order would be an overly broad measure that
would deny AIB the opportunity to establish statutory standing. Therefore, the Motion for a
Protective Order is denied.
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IV. Conclusion
Therefore, AIB’s Motion to Compel [97] will be granted in part, denied in part, and
Plaintiff United States’ Motion for a Protective Order [105] will be denied. An Order consistent
with this Memorandum Opinion will be issued separately.
DATE: February 13, 2015 /s/
ALAN KAY
UNITED STATES MAGISTRATE JUDGE
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