IN RE MATTER OF THE APPLICATION OF B&C KB HOLDING GMBH FOR AN ORDER TO TAKE DISCOVERY PURSUANT TO 28 U.S.C. § 1782 FROM THE STATE OF WISCONSIN INVESTMENT BOARD
23-MC-6
IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN
September 14, 2023
STEPHEN L. CROCKER, Magistrate Judge
OPINION AND ORDER
B&C KB Holding GmbH (“B&C“), a Vienna-based company, claims to have been defrauded in connection with its purchase of an 80% interest in an Austrian packaging company called Schur Flexibles Group (“Schur“). B&C has reported the fraud to the Austrian authorities, who have opened a criminal investigation. Meanwhile, B&C has been attempting on its own to obtain evidence to share with the Austrian prosecutor to support its fraud claims and recoup its losses. As part of this effort, B&C has filed an application with this court under
For the reasons that follow, I am denying SWIB‘s request for a stay and I am granting in part and denying in part B&C‘s
BACKGROUND
The following facts are drawn from B&C‘s application, which it supports with declarations from its Austrian attorney, Dr. Michael Rohregger, its Managing Director, Thomas Zimpfer, and its New York attorney, Zachary Rosenbaum. Dkts. 4, 5, 11. The material facts are not in dispute:
B&C is a private company located in Vienna, Austria. The State of Wisconsin Investment Board is an independent state-created agency responsible for managing the assets of several state trusts and public funds.
SWIB is one of several passive, limited investors in a Delaware private equity fund, “the LG Fund.” SWIB has committed less than 0.05% of its assets to this fund. The LG Fund is managed by an affiliate of Lindsay Goldberg (“LG“), a private equity firm with its principal place of business in New York City. Among its other investments, the LG Fund indirectly holds an ownership stake in AF Coop, an excluded liability cooperative incorporated in the Netherlands. In September 2021, AF Coop, along with Lindsay Goldberg Europe GmBH, sold an 80% ownership stake in Schur Flexibles Group1 to B&C for €258.4 million (~ $300 million).
B&C avers that, shortly after the sale was completed, B&C discovered evidence that three executives at Schur Flexibles Group—Michael Schernthaner, Michael Fischkin, and Conny Stöhrer—had misappropriated corporate funds and had artificially inflated Schur‘s 2018-2020 earnings on its financial statements, rendering B&C‘s investment in Schur virtually worthless. B&C filed a criminal complaint with the Austrian Public Prosecutor‘s office, which is currently investigating the former Schur executives for suspected aggravated fraud. Also under investigation is Thomas Unger, the managing partner of Lindsay Goldberg Europe.
As an alleged crime victim, B&C has the right under Austrian law to submit evidence in the criminal investigation, and the prosecutor is obliged to consider any evidence B&C submits. B&C has already submitted evidence and intends to submit more to the Austrian authorities to ensure that the scope of the criminal investigation includes potential crimes against B&C.
In July 2022, B&C filed a
On June 8, District Judge Lewis Kaplan overruled respondents’ objections to Judge Figueredo‘s decision. In re B&C KB Holding GmbH, No. 22-MC-180 (LAK) (VF), 2023 WL 4544775 (S.D.N.Y. June 8, 2023). LG and Dees have appealed that decision to the Second Circuit. To date, they have not responded to B&C‘s discovery requests.
Having failed to obtain any information about Schur directly from LG, B&C now seeks to discover that information from limited, passive investors in the LG Fund, one of which is SWIB.2 B&C asserts that, as an investor in the LG Fund, SWIB is expected to possess information concerning LG‘s investments, including Schur. B&C also believes that SWIB likely received a portion of the proceeds from the sale of Schur to B&C and has information regarding the whereabouts of such payments. Specifically, B&C seeks an order requiring SWIB to produce documents and to provide deposition testimony concerning seven topics related to Schur, covering the period from 2016 to the present. Dkt. 11-1. The topics include: SWIB‘s communications with LG about Schur; information that LG provided to SWIB about Schur; any due diligence that SWIB conducted or was privy to concerning Schur‘s financials; SWIB‘s knowledge of the roles, responsibilities and conduct of the former Schur executives under
ANALYSIS
I. Legal Standard
[t]he 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 . . . 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.
The order “may prescribe the practice and procedure [for the production], which may be in whole or part the practice and procedure of the foreign country“; but unless otherwise provided in the order, the production shall be “in accordance with the Federal Rules of Civil Procedure.”
Congress enacted the statute in order to provide efficient assistance to participants in international litigation, and to encourage foreign countries by example to provide similar means of assistance to U.S. courts. Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 252 (2004). In deciding whether to grant a
II. Statutory Elements
Under the statute‘s plain text, a district court may grant an application under
- the person from whom discovery is sought resides or is found within the district;
- the request is made by a foreign or international tribunal or by any interested person; and
- the discovery is for use in a proceeding in a foreign or international tribunal.
Here, the first two elements are uncontested: SWIB is officed within this district, less than a mile from the federal courthouse; and B&C, as an alleged victim of a fraud being investigated in an Austrian criminal proceeding, is an “interested person” who may seek discovery under the statute. Accord In re B&C KB Holding, 2023 WL 1777326, at *3 (finding B&C to be an “interested person” within the meaning of
SWIB argues that B&C‘s application fails on the third element, i.e., that the discovery B&C seeks “is for use in a proceeding in a foreign or international tribunal.” For purposes of this requirement, applicants need only make a de minimis showing that the requested discovery is “for use” in the proceeding, so long as the proceeding falls within the scope of
There is no dispute that the Austrian criminal investigation is a qualifying foreign proceeding under
SWIB disputes that B&C has shown that the information it seeks is “for use” in the Austrian criminal proceeding. Its arguments are not persuasive. First, SWIB challenges the credibility of B&C‘s stated intent, accusing B&C of engaging in a “fishing expedition.” This is a puzzling accusation; what is B&C fishing for, and why? SWIB and B&C aren‘t party opponents or competitors, and SWIB hasn‘t suggested how B&C could or would use any information it gets from SWIB for anything other the pending criminal investigation.
Second, SWIB asserts that harassment can be inferred from the “delayed timing” of B&C‘s application. Dkt. 22, at 15. But this argument is undeveloped: SWIB doesn‘t say what delay it means. Insofar as it is referring to the fact that Austria commenced its investigation a little more than one year before B&C filed its
Third, SWIB argues that the “for use” requirement is not met because B&C hasn‘t shown that the Austrian prosecutor is interested in any information in SWIB‘s possession. Whether the Austrian prosecutor has specifically requested this information is not the test; the question is whether B&C has “‘the practical ability to inject the requested information into a foreign proceeding.‘” In re B&C KB Holding, 2023 WL 1777326, at *5 (quoting In re Accent Delight Int‘l Ltd., 869 F.3d 121, 131-32 (2d Cir. 2017)). As noted above, Austrian law provides B&C the right to submit evidence to the Austrian prosecutor, and the prosecutor is obliged to consider it. Rohregger Decl., dkt. 4, at ¶ 41. SWIB has not shown or argued otherwise.
Fourth, SWIB disputes the relevance of the information sought by B&C. Courts generally agree that when the applicant seeks information that is “plainly irrelevant” to the foreign proceeding, the “for use” requirement is not met. See, e.g., In re Schlich, 893 F.3d 40, 52 (1st Cir. 2018); Mees v. Buiter, 793 F.3d 291, 299 n.10 (2d Cir. 2015). SWIB argues that any financial information it has about Schur is irrelevant because B&C hasn‘t shown that SWIB knows anything about any criminal wrongdoing by any Schur executives. SWIB reads the relevance requirement far too narrowly. Regardless whether SWIB actually had knowledge of criminal
SWIB voices its most strenuous objection to relevance as to B&C‘s requests for information concerning SWIB‘s return or loss resulting from LG‘s investment in and sale of Schur (Document Requests Nos. 4-6 and Deposition Topics 5-7). B&C asserts that information in SWIB‘s possession concerning sale proceeds paid by B&C to purchase Schur is relevant because proceeds procured by fraud can potentially be seized and subject to forfeiture under Austrian law. SWIB responds that B&C‘s assertions concerning potential forfeiture are too speculative to support a finding that the information it seeks is “for use” in the Austrian proceeding. SWIB‘s argument resonates with the court, but it is better addressed below in the context of determining whether the requested discovery is unduly intrusive or burdensome. For purposes of the statutory inquiry, information about whether SWIB received any proceeds from the Schur sale and what it did with them is not so plainly irrelevant as to defeat B&C‘s assertion that the sought-after information is for use in the Austrian proceeding.
Finally, SWIB argues that “B&C‘s expansive subpoenas encompass any document related to Schur spanning a period of over seven years regardless of whether the document relates to the limited scope of the Austrian criminal proceeding,” and that this overbreadth is evidence that the requested discovery is not “for use” in the Austrian proceeding. Dkt. 22, at 14. Again, this overbreadth argument conflates the third statutory requirement of
In sum, SWIB is located in this district, B&C is an interested person with respect to the Austrian criminal investigation, and B&C has made more than a de minimis showing that the information it seeks is for use in the Austrian criminal investigation. Accordingly, B&C has met the statutory requirements of
III. Discretionary Factors
Having found that the statutory requirements are met, the court turns to the question whether the discovery should be allowed. Intel, 542 U.S. at 264 (“[A] district court is not required to grant a
First, “when the person from whom discovery is sought is a participant in the foreign proceeding . . ., the need for
Second, the court should consider the nature and character of the foreign proceeding and the receptivity of the foreign government, court, or agency to federal-court judicial assistance. Id.
Fourth, “unduly intrusive or burdensome requests may be rejected or trimmed.” Id.
I consider each of these factors in turn.
A. Participant in the foreign proceeding
In Intel, the Court noted that “nonparticipants in the foreign proceeding may be outside the foreign tribunal‘s jurisdictional reach,” making the need for assistance under
SWIB is not a participant in the foreign proceeding. Even so, SWIB argues that
SWIB‘s argument is unpersuasive. It is beyond unlikely that the targets of the criminal investigation–Unger, Schernthaner, Fischkin and Stöhrer–will voluntarily provide information that might show overvaluation or inflation of Schur‘s assets and earnings, nor would they possess documents showing SWIB or LG‘s due diligence or receipt of sales proceeds with respect to Schur. As for LG and Dees, neither is a party to the Austrian criminal investigation. To the extent that SWIB argues that B&C‘s discovery requests are duplicative of its
B. Receptivity of the Austrian prosecutor to United States judicial assistance
The second discretionary factor considers whether the foreign government or agency would accept assistance from federal district courts. See Intel, 542 U.S. at 264. SWIB repeats its argument that there is no evidence that the Austrian prosecutor “has any interest in the information that B&C is seeking from SWIB in this action.” Dkt. 22, at 20. SWIB points out that Austrian authorities already have engaged in extensive discovery; if they want more information, contends SWIB, then Austria can file its own
SWIB‘s argument is unpersuasive. Courts have held that the second Intel factor “weighs in favor of granting the application unless there is some ‘authoritative proof’ that the foreign court would oppose such assistance.” In re Medytox, Inc., No. 118MC00046TWPDLP, 2019 WL 3162174, at *5 (S.D. Ind. July 16, 2019) (quoting Euromepa S.A. v. R. Esmerian, Inc., 51 F.3d 1095, 1100–01 (2d Cir. 1995), report and rec. adopted, No. 118MC00046TWPDLP, 2019 WL 3556930 (S.D. Ind. Aug. 5, 2019)); see also Eduadorian Plaintiffs v. Chevron Corp., 619 F.3d 373, 377 (5th Cir. 2010) (noting absence of “clear directive” from Ecuadorian court that it would reject evidence produced in United States). SWIB offers no evidence that the Austrian prosecutor would oppose United States federal court assistance in obtaining financial information, audits, or analyses of Schur or communications or documents concerning its prior owners’ efforts to sell it, either to B&C or another party. Further, SWIB‘s contention that any discovery request
C. Circumventing foreign discovery procedures
The third discretionary factor looks to whether the
SWIB argues that B&C‘s request would undermine the Austrian criminal code, under which a self-proclaimed crime victim can request that the Austrian prosecutor pursue evidence in furtherance of the criminal investigation. Dkt. 22, at 22 (citing Austrian CCP 224). SWIB argues that absent evidence that B&C has made such a request, the court should find the third factor weighs against discovery. But as just noted, requiring B&C to first attempt to obtain the discovery its seeks through a foreign court or prosecutor “would virtually nullify the statutory provision that interested persons may apply for discovery orders.” In re Medytox, Inc., 2019 WL 3162174, at *7 (quoting In re Application for an Order for Judicial Assistance in a Foreign Proceeding in the Labor Court of Brazil, 466 F. Supp. 2d 1020, 1031 (N.D. Ill. 2006) (internal citations omitted)). In addition,
D. Burdensomeness of discovery request
Finally, the court may reject or “trim” the application if the discovery sought is unduly intrusive or burdensome.. A district court‘s discretion under Section 1782 is governed by “ordinary tools of discovery management, including Rule 26.” Heraeus, 633 F.3d at 597.
Undue burden is the main thrust of SWIB‘s opposition. SWIB doesn‘t present any specific evidence establishing that compliance with the subpoenas will be cost- or labor-intensive. SWIB simply argues that it is unfair to require it to submit to discovery at all, for three main reasons: (1) the Austrian proceeding has nothing to do with SWIB, which is merely a limited, passive investor in the LG Fund; (2) B&C‘s
SWIB‘s first two arguments raise fair points. SWIB‘s orbit is on the outer ring of a concentric circle of investors in Schur. As a mere passive investor in the LG Fund, SWIB is only remotely connected to the alleged fraud under investigation in Austria. It is likely that SWIB never would have been dragged into the Austrian proceeding but for LG and Dees’ stonewalling in SDNY. As B&C admits, some of the discovery it seeks from SWIB is information that is also
Nevertheless, the court is not convinced that the burden on SWIB warrants denying B&C‘s application in toto, or, or that this burden warrants staying this action until the completion of the SDNY proceeding, See Woodman’s Food Mkt., Inc. v. Clorox Co., 2015 WL 4858396, at *2 (W.D. Wis. Aug. 13, 2015) (outlining factors courts should consider in deciding whether to stay discovery). Nothing in the discovery rules prevents a party from seeking the same information from multiple parties, and the court isn‘t persuaded that B&C‘s application is brought in bad faith or for purposes of harassment. As the alleged victim of a massive fraud, B&C has a compelling interest in presenting all relevant evidence concerning the sale of Schur to B&C to the Austrian prosecutor before charging decisions are made, an opportunity that may be lost if it waits for the conclusion of proceedings in SDNY. Expanding its search to investors in the LG Fund is a logical next best option. To the extent this is unfair to SWIB, LG is as much to blame as B&C.
Because both sides make valid points, the court will balance their competing interests by granting a trimmed version of B&C‘s application:
First, B&C‘s Document Requests 1, 2 and 3 are GRANTED. These requests seek: (1) documents and communications concerning Schur Flexibles Group from the earlier of January 1, 2016, or when Lindsay Goldberg began any form of diligence into acquiring Schur Flexibles Group; (2) Schur‘s financial statements; and (3) any documents or communications concerning the four individuals currently under investigation (Unger, Schernthaner, Fischkin, and Stöhrer). Dkt. 6-1, at 10. These requests narrowly target information relevant to the Austrian criminal
Next, B&C‘s Document Requests 4, 5 and 6 are DENIED. These requests seek documents and communications regarding SWIB‘s profit or loss, either directly or indirectly, on its investment in the LG Fund as a result of the Fund‘s investment in Schur. Dkt. 6-1, at 10-11; Dkt. 6-2, at 7. B&C avers that this information is relevant because proceeds paid by B&C for the purchase of Schur that were procured by fraud, to the extent they flowed downstream to SWIB, “can potentially be subject to forfeiture under Austrian law.” Rohregger Dec., dkt. 4, at ¶43. SWIB disputes the accuracy of this assertion, see dkt. 22, at 18, but the court would not allow this discovery even if B&C is correct. Requiring SWIB to tease out what monies might have flowed to it from the Schur sale is not proportional to the needs of the case and it would be unduly intrusive on SWIB at this early stage of the Austrian criminal proceeding. Fraud charges have not yet been filed, much less proven or quantified monetarily. The possibility of asset forfeiture from a downstream, passive investor like SWIB is, at this point, too remote and speculative to justify B&C‘s requests.
Finally, in light of SWIB‘s tangential connection to the Schur sale, its very limited investment in the LG Fund, and the likelihood that relevant information in SWIB‘s possession likely originated with LG, B&C‘s request to depose a SWIB representative is DENIED. Requiring a designee to sit for a deposition imposes a significantly greater burden on SWIB in
ORDER
IT IS ORDERED THAT:
- The State of Wisconsin Investment Board‘s request to stay this proceeding pending final resolution of B&C‘s earlier-filed application the Southern District of New York, In re B&C KB Holding GmbH, No. 22-MC-180 (LAK) (VF), is DENIED.
- The application of B&C Kb Holding Gmbh for an Order to Take Discovery Pursuant to
28 U.S.C. § 1782 from the State of Wisconsin Investment Board, Dkts. 1 and 8, is GRANTED IN PART and DENIED IN PART, in the manner set forth above.
Entered this 14th day of September, 2023.
BY THE COURT:
/s/
STEPHEN L. CROCKER
Magistrate Judge