A recent decision by Judge Sontchi in the Bankruptcy Court for the District of Delaware casts some light on the methods that representatives of non-U.S. debtors can—and can’t—use to track down those who owe such debtors money.
The Representatives of the Irish liquidation proceeding for Irish Bank Resolution Corporation Limited (“IBRC”) obtained recognition of the Irish proceeding under Chapter 15 of the Bankruptcy Code on December 18, 2013. Following that recognition, the Representatives sought to use the discovery mechanisms available in the United States to gain access to the contents of a Yahoo email account maintained in the name of “Abdullah Rasimov.” IBRC is owed approximately €2.8 billion for loans it advanced to companies owned or controlled by Seán Quinn and his five adult children. Based on anonymous tips and confidential discovery conducted before the English High Court, the Representatives believe that the Rasimov account is associated with Séan Quinn’s attempts to evade repayment of the €2.8 billion.
The Representatives’ Earlier Attempts to Access the Account
The Representatives have attempted several methods to get a look at the contents of this account. First, the Representatives served subpoenas on Yahoo, seeking subscriber details, IP login history, and other metadata associated with the account. Yahoo complied with those subpoenas. Next, the Representatives served Yahoo with a follow-up subpoena, requesting the information that was electronically stored in the Yahoo account. Yahoo did not comply, asserting that it was barred from compliance by the Stored Communication Act (“SCA”), which prohibits disclosure of stored communications without the lawful consent of the subscriber.
Next, the Bankruptcy Court issued an order requiring “Rasimov” to turn over all documents related to the Quinns’ scheme, which was served on Rasimov at the Yahoo account. After the order was served, however, further emails to that account were returned with an error message stating that the account no longer existed. The Bankruptcy Court then entered an order directing Rasimov to provide the necessary written consent to Yahoo to release the electronically stored information in the Yahoo account. When no response was forthcoming from Rasimov, the Bankruptcy Court finally issued an order designating the Representatives to be the “subscribers” under the Yahoo account and authorizing the Representatives to provide consent to disclose the contents of the account (the “Subscriber Order”). The Representatives provided this consent to Yahoo, but Yahoo again refused to comply with the follow-up subpoena, asserting that the consent provided by the Representatives did not satisfy the SCA.
The Turnover Motion
On January 20, 2016, the Representatives filed a motion requesting an order directing Yahoo to turn over the contents of the Yahoo account to the Representatives. The motion was premised on Sections 1521(a)(5) and (a)(7) of the Bankruptcy Code, which permit a court to “entrust the administration . . . of . . . the debtor’s assets within the territorial jurisdiction of the United States” to foreign representatives, or (with some inapplicable exceptions) to “grant any additional relief that may be available to a trustee” in a domestic bankruptcy case. The specific relief that the Representatives sought was an order under Sections 542(a) and (e) of the Bankruptcy Code, which require, under certain circumstances, that a non-party to a bankruptcy turn over material in its possession to a bankruptcy trustee.
The Court’s Denial of the Turnover Motion
The Court denied the Representatives’ motion for two reasons: first, it determined that the turnover provisions of Section 542 did not apply to the contents of the email account; second, it determined that the SCA would prohibit Yahoo from disclosing the information even if Section 542 required that information to be turned over.
The Representatives had sought turnover of the emails under two different provisions of bankruptcy law. Section 542(a) requires any entity in possession, custody, or control of property that a trustee could use, sell, or lease under the Bankruptcy Code to turn over that property to the trustee. Section 542(e) permits the court to order an “attorney, accountant, or other person” with “recorded information . . . relating to the debtor’s property or financial affairs” to turn over or disclose that recorded information to the Trustee. While the Court found that the Representatives could take advantage of Section 542 in the abstract, it found that neither of those subsections applied to the emails in the Yahoo account.
While not stated explicitly, the turnover obligation of Section 542(a) applies to property of the bankruptcy estate, or under chapter 15, property located in the United States that could be administered in the Foreign Proceeding. The Representatives had not provided any evidence to demonstrate that the contents of the Rasimov account were estate property. The Representatives argued that the account contents became their property upon entry of the Subscriber Order, but the Court disagreed, stating that argument “puts the cart before the horse.” The contents were not property subject to the Foreign Proceeding upon the bankruptcy filing, and the Representatives could not recharacterize them as such pursuant to the Subscriber Order.
Under Section 542(e), on the other hand, the Court held that the Representatives were unable to prove that the emails in the account “relat[ed] to the debtor’s property or financial affairs.” Perhaps because the discovery conducted before the English High Court corroborating the anonymous tips about the Yahoo account was confidential, the Representatives presented no evidence that the contents of the Yahoo account related to the Quinn scheme. Instead, the Representatives merely stated in the turnover motion that the account was “believed to be connected to the Quinn Family and/or their agents perpetrating their improper scheme of concealing assets.” This, the Court held, was an insufficient basis for ordering Yahoo to turn over emails.
Finally, the Court held that even if turnover would otherwise be appropriate under Section 542, the SCA would prevent the Court from issuing a turnover order. The SCA creates a “zone of privacy” by delineating when a service provider, such as Yahoo, may disclose information about its customers or the contents of accounts. Emails may be disclosed if “the originator or an addressee or intended recipient of [an email] or the subscriber [associated with an account] gives “lawful consent” to such disclosure. Yahoo and the Representatives agreed that Rasimov could have given that consent and did not. The Representatives, however, argued that the Subscriber Order permitted Yahoo to use the Representatives’ consent in place of Rasimov’s. The Court disagreed, holding that “judicially-manufactured consent over the steadfast objection of an email user” cannot permit disclosure under the SCA. Thus, even if the turnover motion were meritorious under Section 542 of the Bankruptcy Code, the Court would be powerless under the SCA to force Yahoo to comply.
While the U.S. provides valuable discovery tools, this case provides a reminder that these tools are not unlimited, and that activities in foreign proceedings must be planned in advance to take advantage of U.S. tools. If the Representatives had the ability to present the bankruptcy court with evidence backing up their claims that the Yahoo account related to the Quinn scheme, the outcome of their attempt to access the emails under Section 542(e) might have been more favorable.
Several federal courts have held that the SCA serves as a broad prohibition against the nonconsensual disclosure of emails, even from accounts demonstrably associated with wrongdoers. Without ruling on the actual scope of the SCA’s prohibitions, the Bankruptcy Court for the Southern District of New York has taken the SCA, combined with the federal Wiretap Act, 18 U.S.C. § 2511, et seq., as evidence of a strong U.S. public policy of electronic communications privacy, and denied chapter 15 recognition on the basis of that policy. In re Toft, 453 B.R. 186, 196 (Bankr. S.D.N.Y. 2011). The SCA has proved an impediment not only to cross-border debtors, but also to federal law enforcement: the Court of Appeals for the Second Circuit recently quashed a warrant ordering Microsoft to produce to the FBI emails stored on a server in Ireland. Microsoft v. United States, 829 F.3d 197 (2d Cir. 2016). Foreign Representatives looking to file cases under Chapter 15 should consider their needs for discovery and look into the law applicable in their chosen forum.