Netbank v Commercial Money Centre

• Jurisdiction: Bermuda
• Judgment Date: 27 October 2004
• Date: 27 October 2004
• Docket Number: Civil Jurisdiction 2004 No. 112
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Kawaley, J

Civil Jurisdiction 2004 No. 112

BETWEEN:

NetBank

Plaintiff

and

Commercial Money Center

Defendant

Mr. N Hargun for the Applicants

Mr. R Horseman for the Plaintiff

The following cases were referred to in the judgment:

Abell v Potomac InsuranceBDLR [1986] Bda LR 77

Golden Eagle Refinery Co Ltd v Associated International Insurance Co [1998] EWCA Civ 293

First American Corp v Sheik Zayad bin Sultan Al-Nahyan [1998] EWCA Cvil 817

Re Asbestos Insurance Coverage CasesUNK [1985] 1 All ER 716

In re WestinghouseELR [1978] AC 547

In re Norway's ApplicationELR [1987] 1 QB 433

Minnesota v Philip Morris [1997] EWCA Civ 2241

Hague Convention on the Taking Abroad of Evidence in Civil and Commercial Matters

Letter of request — Evidence — Ex parted applications to set aside another ex parte Order — Jurisdiction — Fishing expedition — Discretion

JUDGMENT of Kawaley, Puisne Judge

Background

The involvement of Bermuda-based entities in commercial activities resulting in civil and commercial litigation abroad, principally in the United States, makes the need to obtain evidence here for trials elsewhere a frequent occurrence.

Letters of request are issued to this Court by the foreign court concerned, and applications, ex parte in the first instance, are made for an order requiring witnesses located in Bermuda to produce documents and/or attend to give oral evidence before an examiner appointed by the Bermudian Court. Such applications, minor skirmishes surrounding the precise scope of documents to be produced apart, are rarely contested on an inter partes basis.

And while there appears to be no shortage of caselaw on the English Rules of Court from which Bermuda's statutory regime is derived, there appears to be only one, unreported, Bermudian considered judgment on the principles which govern this important area of the law. This was Supreme Court of Bermuda Civil Jurisdiction 1986: No.421, Abell et al v Potomac Insurance Co. of Illinois et al, a Judgment of Ephraim Georges, J. (Acting) dated December 3, 1986 on now repealed legislation, which Mr. Hargun for completeness placed before the Court. Accordingly, while I gave my decision at the end of the hearing of an application to discharge orders for the production of documents and oral testimony made by the four Applicants, a large part of the argument being effectively determined by sensible concessions on the Plaintiff's Counsel's part, I indicated that I would give reasons for that decision at a later date.

THE EX PARTE APPLICATIONS MADE BY AND ORDERS OBTAINED BY THE PLAINTIFF

The Ex Parte Orders which form the subject of the present application, and the grounds on which they are attacked, were helpfully summarized in Mr. Hargun's written submissions as follows:

‘1. This is an application made on behalf of Timothy McDonald, Andrew Gibbs, Larry Lombardo and Mark Herman (‘the Applicants’) to set aside one Ex Parte Order of the Supreme Court dated 8 April 2004 and two Ex Parte Orders of the Supreme Court dated 3 June 2004. The application is made by Summons filed on 18 June 2004.

2. The Ex Parte Order of 8 April 2004 required the Applicants to attend for the purposes of being examined in accordance with the five letters of request issued by Magistrate Judge Nancy A. Vecchiarelli, United States District Court for the Northern District of Ohio, each dated 3 March 2004.

3. The first Order of 3 June 2004 (Tab 7) required the Applicants to produce the documents described and detailed in the said letters of request.

4. The second Order of 3 June 2004 (Tab 10) required Larry Lombardo to attend for the purposes of being examined in accordance with the two letters of request issued by Magistrate Judge Vecchiarelli, each dated 28 April 2004. The first letter of request dated 28 April 2004 (Tab 9) in fact requires ACE Bermuda Insurance Limited (‘ACE Bermuda’) to produce documents. The second letter of request dated 28 April 2004 (Tab 9) requires Intrepid Reinsurance Ltd. (‘Intrepid Re’) to produce documents.

5. The grounds set out in the Summons for this application are:-

a. There was no jurisdiction to make the said Orders and/or the Court should not as a matter of discretion have made the said Orders;

b. The five letters of request, each dated 3 March 2004, and the two letters of request, each dated 28 April 2004, which resulted in the three Ex Parte Orders, are requests for discovery and/or are fishing requests and are not requests for evidence for trial;

c. Insofar as the letters of request relate to the production of documents, they do not specify individual documents to be produced and as a result, the Court has no jurisdiction to give effect to the letters of request;

d. The two letters of request dated 28 April 2004, which resulted in an Ex Parte Order requiring Mr. Lombardo to be examined, did not in fact request that Mr. Lombardo be examined.’

The Applicants are all employees of Ace Bermuda Insurance Limited. The Plaintiff is also plaintiff in United States District Court Northern District of Ohio Eastern Division, Case no.:1:02CV 16000/MDL Case No. 1:02–16010, NETBANK, a federal savings bank, Plaintiff -v ILLINOIS UNION INSURANCE COMPANY, an Illinois corporation; SAFECO INSURANCE COMPANY OF AMERICA, a Washington corporation; ROYAL INDEMNITY COMPANY, a New York corporation; and FRONTIER INSURANCE COMPANY, a New York corporation (‘the U.S. action’).

The application was argued on the basis that the Letter of Request issued in the U.S. action dated March 3, 2004 in respect of Mr. Lombardo was materially the same as the four others. The crucial portions of this Letter of Request provided as follows

‘The United States District Court for the Northern District of Ohio presents its compliments to the appropriate Judicial Authority in Bermuda, and requests international judicial assistance, pursuant to Rule 28 (b) of the Federal Rules of Civil Procedure and by Section 1781 of Title 28 of the United States Code, to issue this Letter Rogatory to obtain evidence to be used in a civil proceeding before this Court in the above captioned matter.

This Court requests the assistance described herein as necessary in the interests of justice. The assistance requested is that the Supreme Court in Bermuda compel the production of documents as well as the appearance of the below named witnesses to give testimony. The Supreme Court is respectfully requested to summon Larry Lombardo to produce documents and to appear to give testimony.

Documents:

The documents which the witness is requested to produce are attached hereto.

Questions:

The topics on which the witness is requested to give testimony include: interaction with Custom Risk Solutions, Inc.; understanding of the CMC program; knowledge regarding CMC program; and knowledge regarding the insurance policies and bonds issued to investors in the CMC program.

The Court requests that the Supreme Court permit the following U.S. counsel, representing NetBank, a federal savings bank, that is a party to this lawsuit, to question the witnesses under oath before a person nominated by the Supreme Court: …

The Court also requests that the Supreme Court permit the videotaping of the witnesses testimony so that the testimony may be viewed by a jury in the United States at the time of trial.

Facts:

This is an action where investors and lenders to investors, including NetBank, are seeking recovery under various insurance policies issued by Act/Illinois Union Insurance Company which strictly guaranteed the investors investment in CMC. The testimony of the witness is critical for the purposes of determining Ace's understanding of the CMC program, the purpose of the insurance policy it issued, and how the purpose of this insurance policy was represented to the investors.

Reciprocity:

This Court shall be pleased to provide the Courts of Bermuda with similar judicial assistance, in similar cases.

The document-related requests, in particular, were formulated very widely, explicitly in the form of discovery requests, as opposed to requests for specified documents known to be in the witnesses' possession, as the ‘INSTRUCTIONS’ set out above make clear. A typical request reads: ‘Produce any and all documents constituting or referring to communications between you and any one of the following entities taking place at any time in the past six years.’ And there was no contractual relationship between the witnesses' present employer and any parties to the U.S. action alleged, nor was their employer a party to the action.

The Ex parte application pursuant to the five Letters of Request were supported by an affidavit sworn by William Custer on March 25, 2004. The Georgia attorney deposed that:

‘2. That this is an action where investors like NetBank and lenders to investors are seeking recovery under various insurance policies and surety bonds issued by insurance and surety companies including Act/Illinois Union Company, Royal Indemnity Company, and Safeco Insurance Company of America (the ‘Sureties’) which strictly guaranteed the investment made by the investors in a program offered by Commercial Money Center (‘CMC’). The Claimants have asserted claims against the Sureties to recovery payment in excess of hundreds of millions of dollars under surety bonds and insurance policies that guaranteed the Claimants' investments relating to pools of equipment leases that were originated by CMC. Each of the Sureties have denied coverage under the policies and the bonds. The crux of their defense is that CMC fraudulently induced them to issue the policies and bonds. The proceedings against the Sureties have been consolidated for pre-trial purposes by the Judicial Panel on Multi-District Litigation before Judge Kathleen O'Malley in the United States District Court for the Northern District of Ohio

3. That the testimony of Larry Lombardo, Randi Cigelnik...