One consequence of Russia’s invasion of Ukraine and the US, UK, and EU sanctions that it spawned is a spate of Russia-related litigation around the world. Because so many Russian entities and individuals are subject to US sanctions, it is tempting to assume that those targeted by US sanctions will be unable to access US courts, particularly when they do so in aid of claims that, if successful, may undermine the goals of the US Government’s Russia sanction program. Not so. One area that bears particular consideration is the use of Section 1782—which permits foreign litigants to gain discovery in the United States—by Russian companies and businesspeople. In fact, for years, sanctioned Russian individuals have successfully deployed Section 1782 discovery to obtain evidence for foreign proceedings and a recent decision from the District of Connecticut suggests that this is unlikely to change.
The decision, handed down in National Bank Trust v. Belyaev, highlights a few key points that anyone engaged in Russia-related litigation anywhere in the world should keep in mind:
- Russian entities (and entities owned by Russian entities) subject to US sanctions can still obtain discovery in the US under Section 1782 because Section 1782 discovery does not inherently violate the letter and spirit of current US sanctions against Russia, and US judges have been willing to exercise their discretion to provide sanctioned Russian individuals with such discovery[1];
- whether Section 1782 discovery violates US sanctions may depend on the exact wording of any executive order issued; and
- even though a Russian entity can obtain discovery under Section 1782, it remains unclear whether a Russian entity can successfully litigate against US residents or transfer assets located in the US without violating sanctions.
Let’s unpack that a bit.
Section 1782 discovery
Section 1782 allows for US-style discovery in aid of a foreign proceeding. (You can read more about Section 1782 discovery here.)
Basically, a party goes to a US court and asks permission (usually without notice to the discovery target) to serve subpoenas on a person or entity found in the district where the application was filed. If the application is granted, the party seeking discovery then goes to serve the subpoenas and then the game is afoot. Once served with the subpoena, the discovery target can seek to have the subpoena quashed, but quashing a Section 1782 subpoena is easier said than done.
Recently, the District of Connecticut heard one such case in which the subpoenaed party argued that Russian sanctions precluded the discovery being sought. In National Bank Trust v. Belyaev, a Russian bank, owned by the sanctioned Russian Central Bank, sought discovery about funds that were transferred to a US company—in connection with a lawsuit in England—against the bank’s former owner. The former owner resisted, arguing that a discovery order would violate the letter and spirit of US sanctions. After determining that the bank was not subject to blocking sanctions, the court held that even if it were, an order granting the bank discovery would not violate US sanctions. The court concluded that the wording of the relevant executive order imposing sanctions did not bar applications for discovery, and rejected the argument that US courts should deny discovery requests merely because US foreign policy disfavors the recipient. The court then exercised its discretion to grant the National Bank Trust the discovery it sought.
This case was hardly groundbreaking. Although a US court cannot order a party to violate sanctions, US courts have held that Section 1782 discovery does not necessarily violate sanctions. For example, in Deposit Insurance Agency v. Leontiev (S.D.N.Y. 2018), the court held that obtaining a document in discovery does not confer a property right, and so an order entitling a sanctioned person to documents does not violate US sanctions barring US nationals from transferring property to sanctioned individuals. Other US cases have come to the same conclusion. See National Bank Trust v. Ananyev (S.D.N.Y. 2022) and Otkritie v. Mints (S.D.N.Y. 2022).
So what is a party engaged in Russia-related litigation around the world to do?
First, understand where the relevant evidence is and, if that evidence is in the US, prepare to either seek or defend against a Section 1782 request.
Second, consider getting to know Section 1782 a bit better if there is a risk a Section 1782 request might pop up. What are Section 1782’s implications for privilege? Can a party seek reciprocal discovery (under a “what’s good for the goose is good for the gander” theory)? And how do the procedural rules governing a Section 1782 application interact with the foreign litigation for which the applicant is seeking Section 1782 discovery?
Finally, examine whether and to what extent the parties against which one may be litigating are covered by relevant sanctions. Here, the details matter. In the Belyaev case discussed above, the court focused on the meaning of the actual words in the executive order to conclude that discovery would not violate sanctions. But a more broadly worded executive order could have a different outcome.
[1] For more on Russia-related sanctions, please visit https://www.freshfields.com/en-gb/our-thinking/campaigns/2022-russia-sanctions/
