Opinion
24 Misc. 152 (GHW) (GS)
07-29-2024
IN THE MATTER OF THE APPLICATION FOR AN ORDER SEEKING DISCOVERY UNDER 28 U.S.C. § 1782
REPORT & RECOMMENDATION
GARY STEIN, UNITED STATES MAGISTRATE JUDGE:
Before the Court is applicant Carlos Lazo Reyes's (“Lazo”) revised ex parte application for judicial assistance, pursuant to 28 U.S.C. § 1782, seeking to serve document subpoenas on The Federal Reserve Bank of New York (the “NY Federal Reserve”) and The Clearing House Payments Company LLC (“CHIPS”) in the United States. (Dkt. No. 18 (“Revised Application” or “Revised App.”)). For the reasons set forth below, the Court recommends that Lazo's Revised Application be GRANTED.
BACKGROUND
A. Prior Proceedings
Lazo's Revised Application for discovery assistance comes against the backdrop of the Court's May 16, 2024 Report & Recommendation (Dkt. No. 16, reported at 2024 WL 2883293 (the “R&R”)), and Judge Woods's adoption thereof. (Dkt. No. 20, reported at 2024 WL 2883091 (S.D.N.Y. Jun. 5, 2024)). As outlined in greater detail in the R&R, Lazo is the founder and former president of YOX Holding S.A. de C.V. (“YOX”), a sports betting platform in Mexico. (R&R at 1-2).
Beginning in late 2023, certain YOX users stopped receiving payouts on winning wagers and complained to Mexican authorities about potential fraud. (Id. at 2). Since then, Lazo has been the target of numerous criminal investigations in Jalisco (the state in which YOX is based) and other Mexican jurisdictions. (Id. at 2-3). Lazo maintains that, at the time the alleged fraud took place, he had already stepped back from day-to-day involvement with YOX due to a cancer diagnosis for which he sought treatment in the United States. (Id. at 1-2). Lazo submits that his previously trusted lieutenants in the business (the “YOX Executives”) are solely responsible for any criminal wrongdoing which has occurred. (Id. at 3). He believes the discovery he seeks will implicate the YOX Executives and exonerate him. (See id. at 3-4).
In analyzing whether Lazo's initial application satisfied the prerequisites for relief under Section 1782, the Court found that Lazo had met the first and third statutory requirements (id. at 7-8), but not the second requirement: that the requested discovery be “for use” in a proceeding before a foreign or international tribunal. (Id. at 8-16). More specifically, the Court found that Lazo had failed to meet his burden of identifying a “proceeding” before a “tribunal,” either in Jalisco or elsewhere, that was either pending or within reasonable contemplation and in which the requested evidence could be used. (Id. at 11-15). As noted in the R&R, Lazo did not provide a sworn declaration from Mexican counsel explaining, with reference to Mexican law and procedure, how this requirement was satisfied. (Id. at 14-15). Proceeding to the discretionary Intel factors, the Court raised certain concerns with respect to the third and fourth factors but found, on balance, the four Intel factors weighed in favor of granting Lazo's application. (Id. at 17-22).
In its discussion of Lazo's failure to meet the second statutory requirement, the Court invited Lazo to submit a revised application curing his initial application's deficiencies. (Id. at 22). As the Court emphasized, Lazo “has not made a sufficient showing” as to the second statutory requirement, but that did not mean he “cannot make a sufficient showing.” (Id. at 16; emphasis in original).
B. The Revised Application
On May 30, 2024, Lazo filed the Revised Application. In support of the application, Lazo not only re-submitted his declaration attached to his initial application, but also provided a sworn declaration from his lead Mexican counsel, Alfredo Dominguez. (Dkt. No. 18 Ex. 2 (“Lazo Decl.”); id. Ex. 3 (“Dominguez Declaration” or “Dominguez Decl.”); see also Dkt. No. 7).
In addition to Lazo's prior attestations, which were detailed in the R&R (see R&R at 1-4), Dominguez updates and elaborates upon the criminal investigations underway against Lazo in Mexico as well as Lazo's contemplated uses of the requested discovery. Dominguez states that Lazo's legal team had knowledge of only one arrest warrant against Lazo at the time of his initial Section 1782 application, but it has now identified 32 arrest warrants against Lazo (one of which also names his daughter) in the state of Jalisco. (See Dominguez Decl. ¶¶ 4-5, 8). These arrest warrants are all essentially the same and are based on the crime of fraude, which requires a showing of intent to defraud the victim. (Id. ¶¶ 6-7, 21).
According to Dominguez, each of these arrest warrants seeks to detain Mr. Lazo in order “to compel him to appear at a charging hearing before a Mexican criminal judge.” (Id. ¶ 9). At that hearing, “[a] defendant may submit exculpatory evidence” to influence the presiding criminal judge's decision as to whether those charges should be dismissed, or the prosecutor should be permitted to proceed with the investigation. (Id.). Lazo wishes to use the requested discovery at these charging hearings. (Id. ¶¶ 11-14). However, so far as the materials before the Court demonstrate, Lazo has not been arrested on any of these warrants (presumably because he remains outside of Mexico), and it is unclear if Lazo will ever appear at such a future hearing. (See id. ¶ 13 (“[t]he evidence that Mr. Lazo is seeking in the United States will be critical if he ever participates in a charging hearing”) (emphasis added)).
Apart from these charging hearings, Lazo also plans to use the requested discovery for use in “amparo actions” challenging the arrest warrants and asset confiscation orders. (Id. ¶¶ 15, 23; see also R&R at 3, 12, 15). An amparo action, brought pursuant to Article 75 of the Ley de Amparo, is a legal challenge against “public entities or officials, including judges” for alleged violations of constitutional or human rights. (Id. ¶¶ 16, 19). According to Dominguez, “[i]mmediately after an arrest warrant is issued . . . the defendant can challenge the arrest warrant” through the filing of an amparo action. (Id. ¶ 16). Dominguez states that it is a “common part of criminal defense practice in Mexico” to file an amparo action against an arrest warrant and argue that the warrant violates the defendant's rights “because it is premised on false facts or evidence or because the alleged conduct does not meet the elements of any crime.” (Id. ¶ 17). Further, according to Dominguez, because Lazo has not yet been provided an opportunity to present exculpatory evidence to the prosecutors who are investigating him, the judges presiding over Lazo's various amparo proceedings will be required to entertain exculpatory evidence, such as the evidence Lazo hopes to find through the discovery sought in this District. (Id. ¶¶ 19-21).
As of the filing of the Dominguez Declaration, Lazo has already initiated 32 amparo proceedings, each corresponding to one of the 32 Jalisco arrest warrants. (Id. ¶ 18). Conversely, Lazo has not yet initiated an amparo action against any confiscation order directed against Lazo's property. (See id. ¶ 23). Dominguez states that he has strategic concerns over the timing of commencing such proceedings, but that Lazo intends to initiate them at some point. (Id. ¶¶ 27-29). For both sets of amparo actions, Dominguez claims “there is no other avenue” for Lazo to obtain exculpatory evidence other than the instant discovery application in New York due to the unavailability of “any procedural mechanism to get an amparo court during an amparo proceeding to compel a party to produce documents or sit for a deposition.” (Id. ¶¶ 22, 32).
Finally, Dominguez states that Lazo would also use the requested discovery in the criminal investigation that Lazo initiated against the YOX Executives who he believes are responsible for the fraud. (Id. ¶¶ 33-35). He acknowledges that this investigation “has not made any progress” yet. (Id. ¶ 33). If the prosecutor never charges the YOX Executives, Lazo will seek to use the requested discovery in a civil proceeding he would institute against the YOX Executives. (Id. ¶ 36). However, Lazo will likely wait to file such a civil lawsuit until Mexican prosecutors decide whether to bring criminal charges. (Id.).
LEGAL STANDARDS
Under 28 U.S.C. § 1782(a),
[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.
As a threshold matter, a district court may not grant an application pursuant to Section 1782 unless three statutory requirements are met: “(1) the person from whom discovery is sought resides or is found within the district; (2) the discovery is for use in a proceeding before a foreign tribunal; and (3) the application is made by a foreign or international tribunal or any interested person.” Kiobel v. Cravath, Swaine & Moore, LLP, 895 F.3d 238, 243 (2d Cir. 2018) (cleaned up); accord, e.g., Fed. Republic of Nigeria v. VR Advisory Servs., 27 F.4th 136, 148 (2d Cir. 2022); Mees v. Buiter, 793 F.3d 291, 297 (2d Cir. 2015).
If the requisite statutory requirements are met, district courts will then exercise their discretion to determine whether the sought-after discovery should be permitted. In re Ulmans, No. 23 Misc. 23 (GHW) (VF), 2023 WL 3853703, at *3 (S.D.N.Y. Apr. 20, 2023), adopted 2023 WL 3412769 (S.D.N.Y. May 12, 2023) (citations omitted). In Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the Supreme Court identified four factors (i.e., the Intel factors) for district courts to consider in conducting this analysis: “(1) whether the person from whom the discovery is sought is a participant in the foreign proceeding; (2) the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance; (3) whether the Section 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States; and (4) whether the Section 1782 application contains unduly intrusive or burdensome discovery requests.” Ulmans, 2023 WL 3853703, at *3 (citing Intel, 542 U.S. at 264-65).
Although district courts should consider the Intel factors as a “useful guide,” courts in this Circuit have clarified that they are neither exhaustive nor dispositive. See, e.g., In re Cbre Global Investors (NL) B.V., No. 20 Misc. 315 (VEC), 2021 WL 2894721, at *9 (S.D.N.Y. July 9, 2021) (“no single Intel factor is alone dispositive” and “the Intel factors are not to be applied mechanically . . . [a] district court should also take into account any other pertinent issues arising from the facts of the particular dispute”) (cleaned up). District courts should also exercise their discretion in light of Section 1782's “twin aims,” which are: (1) “providing efficient assistance to participants in international litigation” and (2) “encouraging foreign countries by example to provide similar means of assistance to our courts.” Intel, 542 U.S. at 252.
Finally, “it is neither uncommon nor improper for district courts to grant applications made pursuant to §1782 ex parte.” Gushlak v. Gushlak, 486 Fed.Appx. 215, 217 (2d Cir. 2012) (citing examples); see also In re Tethyan Copper Co. Pty Ltd., No. 21 Misc. 377 (AT), 2022 WL 1266314, at *1 (S.D.N.Y. Apr. 28, 2022) (“Courts routinely grant such petitions ex parte.”). This procedure does not violate the due process rights of the subpoenaed party because that party “‘can later challenge any discovery request by moving to quash pursuant to Federal Rule of Civil Procedure 45(c)(3).'” In re Abraaj Inv. Mgmt. Ltd., No. 20 Misc. 229 (VSB), 2023 WL 2674752, at *2 (S.D.N.Y. Mar. 29, 2023) (quoting Gushlak, 486 Fed.Appx. at 217).
DISCUSSION
A. The Statutory Requirements
1. “Found within the District” and “Interested Person”
The Court previously found that the targets of Lazo's discovery request, the NY Federal Reserve and CHIPS, are both found within this District, satisfying the first statutory requirement. (R&R at 7 (citing In re Ibiuna Credito Gestao de Recursos Ltda., No. 24 Misc. 13 (JGK) (RFT), 2024 WL 1077559, at *4 n.4 (S.D.N.Y. Feb. 14, 2024), adopted 2024 WL 1076940 (S.D.N.Y. Mar. 11, 2024), and Ex parte Abdalla, No. 20 Misc. 727 (PKC), 2021 WL 168469, at *3 (S.D.N.Y. Jan. 19, 2021)).
The Court also found that Lazo is an “interested person” within the meaning of the third statutory requirement, relying on Lazo's showing that he was a subject of criminal investigations in Mexico, in addition to the complainant in the criminal investigation he initiated against the VOX Executives. (Id. at 7-8). That conclusion is only strengthened by the Revised Application's additional showing that Lazo is currently a party to 32 amparo actions. (Revised App. at 9). See, e.g., Salcido-Romo v. Southern Copper Corp., No. CV-16-01639-PHX-DLR, 2016 WL 3213212, at *2 (D. Ariz. June 10, 2016) (finding 1782 petitioners were “interested persons” because they were “parties to the pending writ of amparo actions”)).
2. The Amparo Actions Satisfy the “For Use” Requirement
Through Dominguez's representation that Lazo has filed 32 separate amparo proceedings-corresponding to each of the arrest warrants in Jalisco currently known to him-Lazo now meets the “for use” requirement under Section 1782.
Amparo actions are typically discussed by U.S. courts in the context of extradition proceedings. See, e.g., Noeller v. Wojdylo, 922 F.3d 797, 801 (7th Cir. 2019); United States v. Fowlie, 24 F.3d 1059, 1064 (9th Cir. 1994); In re Mathison, 974 F.Supp.2d 1296, 1302-03 (D. Or. 2013); In re Wepplo, No. 09 Misc. 53, 2010 WL 1433407 (N.D. Ohio Apr. 7, 2010). These cases provide helpful color as to the nature of an Amparo proceeding predicated on challenging an arrest warrant, and the concept of Amparo more broadly.
“‘Amparo' is Spanish for ‘protection.' Although the Amparo is a highly complex legal institution . . . it is somewhat similar to habeas corpus and, inter alia, is the means to review and annul unconstitutional judicial decisions.” Fowlie, 24 F.3d at 1064; see also Noeller, 922 F.3d at 801 (same). Amparo proceedings “empower[] Mexican federal courts to review government action” including “[t]he validity of an arrest warrant.” In re Mathison, 974 F.Supp.2d at 1303 (emphasis added); see also Hector Fix Zamudio, A Brief Introduction to the Mexican Writ of Amparo, 9 CAL. W. INT'L. L.J. 306, 317, 329 (1979) (an Amparo petition to protect individual liberties “is filed in the district court in first instance” and “tried . . . by a federal district judge”).
In the R&R, the Court explained that although Lazo's initial application demonstrated that he was the subject of criminal investigations in Mexico, a criminal investigation in Mexico is not itself tantamount to a “proceeding in a foreign or international tribunal” within the meaning of the “for use” prong of Section 1782. (R&R at 8-12). The initial application was flawed because Lazo failed to identify any pending or contemplated proceeding before a “tribunal.” (Id. at 13-16). Now, however, through the Dominguez Defendant, Lazo has demonstrated that 32 Amparo actions are underway before one or more Mexican federal courts challenging the validity of the arrest warrants issued against Lazo. (Dominguez Decl. ¶¶ 15-22; Revised App. at 15-16). An Amparo action is plainly a “proceeding” and a Mexican federal court is plainly a “tribunal” within the meaning of Section 1782. (See R&R at 9 (“A ‘tribunal' within the meaning of Section 1782 includes, but is not limited to, courts”)).
Further, Lazo has also demonstrated, through the Dominguez Declaration, that the requested discovery from the NY Federal Reserve and CHIPS is intended “for use” in the Amparo proceedings. Previously, the Court had questioned how this evidence, the purpose of which is to show that Lazo did not engage in wrongdoing, would be of use to Lazo in defending himself. The Court focused on Lazo's representations that the arrest warrant issued against him “contains no allegation[s] that [he] participated in any wrongdoing,” but instead accused him of fraud “based solely on [his] prior role as YOX's president.” (R&R at 2, 14 (quoting Lazo Decl. ¶¶ 21-22)).
Although the Revised Application reiterates these representations (see Revised App. at 5), Dominguez swears that the evidence Lazo seeks in the United States “will be critical in the course of his amparos,” because evidence showing that neither Lazo nor his family misappropriated funds is “probative of [his] lack of [fraudulent] intent,” and that Lazo intends to use, and can use, this evidence in the amparos. (Dominguez Decl. ¶¶ 15, 21-22). While it would have been helpful if the Revised Application had explained the apparent discrepancy between these assertions and Lazo's characterization of the arrest warrants, the statements in the Dominguez Declaration are sufficient to satisfy the “for use” prong at this stage. See, e.g., In re Pishevar, 439 F.Supp.3d 290, 303 (S.D.N.Y. 2020) (“For purposes of the statutory 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 § 1782.”) (cleaned up).
Accordingly, Lazo has cured the deficiencies of his prior application by showing that he is currently a party to Amparo actions pending before at least one Mexican court. See Salcido-Romo, 2016 WL 3213212, at *2 (finding § 1782 petitioners had met the “for use” requirement where they were parties to amparo actions underway in Mexico). Therefore, the “for use” prong is satisfied.
Although no amparo actions have yet been brought with respect to the confiscation orders, it appears from the Dominguez Declaration that such proceedings are reasonably contemplated, as Lazo is simply waiting until he is confident that no more arrest warrants will be issued. (Dominguez Decl. ¶¶ 27-31). Thus, these anticipated amparos also likely meet the “for use” requirement. The Court has significant doubts, however, as to whether Lazo has made a sufficient showing as to his other planned uses of the requested discovery. First, based on the Dominguez Declaration, no charging hearings on the arrest warrants are currently pending, scheduled, or likely to occur in the foreseeable future. (Dominguez Decl. ¶¶ 11-14). Second, nothing in the Revised Application alters the Court's prior finding that the criminal complaint Lazo filed against the YOX Executives is “insufficient to show the requisite proceeding before a foreign tribunal.” (R&R at 16). Third, possible civil litigation by Lazo against the YOX Executives appears to be, based on Dominguez's own description (see Dominguez Decl. ¶ 36), nothing “more than just a twinkle in counsel's eye.” Certain Funds, Accounts And/Or Inv. Vehicles Managed By Affiliates Of Fortress Inv. Grp. L.L.C. v. KPMG, L.L.P., 798 F.3d 113, 124 (2d Cir. 2015). Where, as here, a Section 1782 applicant's ability to use the requested discovery “depends on some intervening event or decision”-such as Lazo's returning to Mexico and being arrested, or the Mexican prosecutor deciding to not charge the YOX Executives-the applicant “must provide an objective basis on which to conclude that the event will occur or the requisite decision will be favorable.” In re BonSens.org, 95 F.4th 75, 80-81 (2d Cir. 2024) (citation omitted). The Revised Application does not provide such a basis. However, since the Court agrees that the “for use” requirement is satisfied by virtue of the amparo actions, it is immaterial whether Lazo's other contemplated uses of the requested discovery pass muster under Section 1782.
B. Discretionary Factors
The R&R also found that the first and second Intel factors favored granting Lazo's initial application. (R&R at 17-18). Here, Lazo's Revised Application is substantially similar in its presentation of these factors. (Compare Dkt. No. 5 at 10-11 with Revised App. at 17). Because the factual circumstances surrounding the two applications remain unchanged with respect to these two factors, so too does the Court's analysis of them. Further discussion, however, is warranted as to the third and fourth factors.
On the third Intel factor, the R&R noted that “it appears likely that the same information Lazo seeks to compel from the NY Federal Reserve and CHIPS would be available in Mexico” and “records of most, if not all, of the transactions would be located at Mexican banks within Mexico's jurisdiction.” (R&R at 19). Further, Lazo had “provide[d] no explanation as to why he ha[d] not sought records of the financial transactions from Mexican banks or, for that matter, from YOX itself' but the Court surmised that “[i]t may well be that Lazo lacks the means under Mexican law to compel production of the financial records in Mexico at this time.” (Id. at 19-20). Through the Dominguez Declaration, the Court now has an adequate explanation as to this point. According to Dominguez, Lazo indeed lacks a procedural mechanism to induce a Mexican judge presiding over an amparo to compel a party to produce documents or sit for a deposition. (Dominguez Decl. ¶¶ 22, 32).
This explanation allays the Court's concern with respect to the third Intel factor. As the R&R explained, “‘there is a difference between a § 1782(a) request that seeks documents that cannot be obtained in a foreign proceeding because the foreign jurisdiction does not provide a mechanism for such discovery, and one that seeks documents that cannot be obtained because the foreign jurisdiction prohibits the discovery of those documents.'” (R&R at 20 (quoting Abdalla, 2021 WL 168469, at *5)). Without any evidence suggesting that Lazo is circumventing Mexican proof gathering prohibitions at this stage of litigation, the Court finds the third Intel factor weighs in favor of Lazo's Revised Application.
In analyzing the fourth Intel factor, the Court expressed “some concerns with the breadth and potential burden” of Lazo's proposed subpoenas. (R&R at 21). In particular, the Court took issue with (1) Lazo's requests going back to January 2021 and (2) the potential for the subpoenas to sweep in too many transactions with unrelated individuals that have nothing to with the events at issue. (See id.).
In his Revised Application, Lazo attempts to justify the date range in the proposed subpoenas by arguing that in 2021, YOX's “staff was sufficiently large and sophisticated that Mr. Lazo shifted his focus to other ventures” such that it is “possible that the [YOX Executives'] mismanagement and embezzlement . . . began in 2021.” (Revised App. at 19). While this explanation is moderately helpful, Lazo fails to address the Court's second concern about the potential for the subpoenas to cover a universe of transactions and individuals wholly unrelated to YOX.
Nonetheless, this is not fatal to Lazo's Revised Application. As the R&R stated, “in the absence of more concrete information [as to burden], the[] [Court's] concerns do not warrant denying this ex parte Application on burden grounds.” (R&R at 21). As also noted, if either the NY Federal Reserve or CHIPS believes the subpoenas are overbroad and unduly burdensome, either party may later seek to quash the subpoena served on it pursuant to Fed.R.Civ.P. 45. (See id. at 21-22).
In sum, the Court finds the fourth Intel factor to be neutral at this stage of the litigation. However, when all four factors are considered together, the totality of the Intel analysis weighs in favor of granting the Revised Application.
CONCLUSION
For the foregoing reasons, the Court respectfully recommends GRANTING Lazo's ex parte application for discovery without prejudice to interested parties' rights to move to quash the proposed subpoenas (see Dkt. No. 18 Ex. 1).
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Fed.R.Civ.P. 72(b), the parties shall have fourteen days, inclusive of weekends and holidays, from the date of this Report and Recommendation to file written objections thereto. See also Fed. R. Civ. 6(a), (b), and (d). Any such objections shall be filed with the Clerk of Court. Any request for an extension of time to file objections must be directed to the Honorable Gregory H. Woods. A failure to file timely objections will preclude appellate review. See Thomas v. Arn, 474 U.S. 140 (1985); Wagner v. Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010).