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United States v. All Assets Held at Bank Julius Baer & Co., Ltd.

United States District Court, District of Columbia

July 20, 2015



G. MICHAEL HARVEY, Magistrate Judge.

On March 26, 2015, this case was referred to the undersigned for purposes of management of discovery and resolution of any discovery-related disputes. Currently ripe for resolution by the undersigned are (1) Claimant Pavel Lazarenko's ("Claimant" or "Lazarenko") First Motion to Compel [Dkt. 336];[1] and (2) the government's Motion to Compel Claimant's First Set of Interrogatories and to Stay Discovery Pending Such Responses [Dkt. 365].[2] After a thorough review of the parties' briefs concering both motions, of the arguments of counsel at hearings on the motions on May 19, 2015, May 21, 2015, and May 27, 2015, and of the entire record herein, the Court will grant in part and deny in part both motions. The Court's rationale for doing so follows.


The factual background concerning this eleven-year-old in rem asset forfeiture action has been described in multiple opinions by Judge Friedman. See, e.g., United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 772 F.Supp.2d 191, 194 (D.D.C. 2011).[3] This Court will not repeat that lengthy history here. The facts that are pertinent to adjudication of the parties' motions to compel are summarized below.

In its First Amended Complaint ("Amended Complaint"), the United States seeks the forfeiture of more than $250 million deposited in over 20 bank accounts located in Guernsey, Antigua and Barbuda, Switzerland, Lithuania, and Lichtenstein (the "in rem assets" or "in rem defendants"). First Amended Complaint [Dkt. 20] ("Am. Compl.") at ¶¶ 1, 5. The government alleges that the money in those accounts is traceable to a "variety of acts of fraud, extortion, bribery, misappropriation, and/or embezzlement" committed by Claimant, the former Prime Minister of the Ukraine, or by his associates between 1992 and 1998. Id. at ¶¶ 6, 8, 10. The criminal schemes included:

Skimming funds in United States dollars from multimillion dollar contracts for the distribution of natural gas imports in the Ukraine and providing kickbacks to Lazarenko, obtaining property by wrongful use of fear or under color of official right, making payments to Lazarenko to influence or induce him to act or refrain from an official act, manipulating state businesses to provide millions of dollars in goods to private businesses and individuals that would share their profits with Lazarenko, diverting millions of United States dollars to their personal use by using fraudulent contracts to purchase goods for state enterprises at inflated prices or to falsify the purchase of goods that were not purchased, and concealing Lazarenko's association with corporations doing business with the local and national governments to deprive the Ukraine of the honest services of its employees.

Id. at ¶ 10. Claimant and his associates allegedly opened bank accounts in the Switzerland, Antigua, Guernsey, Poland, Liechtenstein, and Cyprus, and transferred the proceeds of these schemes "into and out of these accounts in an effort to conceal or disguise the nature, origin, location, source, ownership or control of these proceeds and property." Id. at ¶ 13. The government claims that large sums of U.S. dollars were also transferred into and out of financial institutions in the United States. Id. at ¶¶ 11-12. The United States asserts its right to the funds pursuant to federal statutes that provide for the forfeiture to the government of funds traceable, or otherwise related to or involved in, criminal activity that occurred at least part in the United States. Id. at ¶¶ 1; see also 18 U.S.C. §§ 981(a)(1)(A) and 981(a)(1)(C).

Notably, during the six-year period between 1992 and 1998, the government alleges that Claimant derived "a personal fortune of more than $300 million in United States dollars through the abuse of his office" in the Ukraine. Id. at ¶ 8. During the same period, the government asserts that Claimant "held no... substantial position of paid employment" other than his Ukrainian regional government posts and his stint as Prime Minister between 1996 and 1997. Id. at ¶¶ 6-7. His income from those positions was meager; the government asserts that Claimant's "combined reported income for 1996 and 1997 was less than the equivalent of $15, 000 in United States dollars." Id. at ¶ 7.

Claimant denies many of the government's allegations in the Amended Complaint. See generally Answer [Dkt. 268]. On the merits, the divide between the parties is wide. It is Claimant's position, as represented by his counsel at the May 27, 2015, hearing, that he is the beneficial owner of, or has an interest in, all or nearly all of the in rem assets, and that the more than $250 million at issue was not derived from any illegitimate activity or sources. See May 27, 2015 Tr. at 73-74; see also Claimant's Verified Claim and Statement of Interest or Right in Property Subject to Forfeiture in Rem [Dkt. 29] ("Cl.'s Verified Claim").

Based on some of the same conduct identified in the Amended Complaint, Claimant was indicted in the Northern District of California in 2001 for money laundering and conspiracy to commit money laundering in violation of 18 U.S.C. §§ 1956(a) and (h), for wire fraud and honest services fraud in violation of 18 U.S.C. §§ 1343 and 1346, for transportation of stolen property in violation of 18 U.S.C. § 2314, and for aiding and abetting in violation of 18 U.S.C. § 2. Am. Compl. at ¶ 17. Claimant's jury trial in California began on March 15, 2005. Id. at ¶ 18. At the close of the government's case-in-chief, the district court dismissed 24 of the government's 53 counts pursuant to Rule 29 of the Federal Rules of Criminal Procedure. See United States. v. Pavel Lazarenko, 564 F.3d1026, 1032-33 (9th Cir. 2009). On June 3, 2005, the jury convicted Claimant on the remaining charges. Id. The district court dismissed an additional 15 of the counts following the jury's verdict. Id. On appeal, six of Claimant's remaining convictions were reversed, and eight were affirmed. Id. at 1029-30. These remaining eight counts of conviction were related to money laundering. Id. at 1037-38. Following his appeal, Claimant was resentenced to a term of imprisonment of 97 months. Cl.'s Memo. at 14. He was released from custody on May 9, 2013. Id.

Discovery in the criminal case was voluminous, and included approximately 70, 000 pages of documents and over 50 depositions in seven countries. Cl.'s Memo. at 7-8, 16-17; Gov't Opp. at 7. Unfortunately, Claimant's attorneys destroyed, lost, or damaged many of the records produced by the United States in the criminal matter, even though those records were likely relevant to Claimant's defense of this asset forfeiture case.[4] Id. Much of the discovery that Claimant now seeks in this matter is focused on reconstructing the discovery he previously received in the criminal case - a long, and time-consuming process, as the Court's recent scheduling order demonstrates, [5] that would have been unnecessary had Claimant's attorneys retained the discovery they received in the criminal matter. Equally problematic, the Department of Justice ("DOJ") trial attorneys responsible for litigating this matter apparently did not collect and retain the discovery produced by the United States in Claimant's criminal case as it was being produced, and are presently in the process of attempting to reassemble what was produced.[6] Id.


1. Scope of Discovery

It has long been recognized that, "[u]nder the broad sweep of Rule 26(b)(1) of the Federal Rules of Civil Procedure, a party may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved.'" Friedman v. Bache Halsey Stuart Shields, Inc., 738 F.2d 1336, 1348-49 (D.C. Cir. 1984). "The broad presumption of Rule 26 in favor of discovery, however, is bounded by the limitations that come into existence when the inquiry touches upon the irrelevant or encroaches upon the recognized domains of privilege.'" Pederson v. Preston, 250 F.R.D. 61, 64 (D.D.C. 2008) (quoting Ass'n for Women in Science v. Califano, 556 F.2d 339, 343 (D.C. Cir. 1977)). "[D]iscovery of matters not reasonably calculated to lead to the discovery of admissible evidence are not within the scope of discovery." Id. Further, the Court "must limit the frequency or extent of discovery otherwise allowed" by Rule 26(b)(1) if it determines that the discovery sought is "unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive, " or the "burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues." Fed.R.Civ.P. 26(b)(2)(C)(i) and (ii).

2. Document Requests

Rule 34 of the Federal Rules of Civil Procedure sets forth the procedures for discovery through document requests. See Fed.R.Civ.P. 34. A request for documents must "describe with reasonable particularity each item or category of items" being requested. Fed.R.Civ.P. 34(b)(1)(A). For each item or category, the responding party must "either state that inspection... will be permitted as requested or state an objection to the request, including the reasons." Fed.R.Civ.P. 34(b)(2)(B). "An objection to part of a request must specify the part and permit inspection of the rest." Fed.R.Civ.P. 34(b)(2)(C).

3. Interrogatories

Rule 33 of the Federal Rules of Civil Procedure sets forth the procedures for discovery through interrogatories. See Fed.R.Civ.P. 33. An interrogatory may "relate to any matter that may be inquired into under Rule 26(b)." Fed.R.Civ.P. 33(a)(2). Rule 33(b)(3) requires that "[e]ach interrogatory must, to the extent it is not objected to, be answered separately and fully in writing and under oath." Fed.R.Civ.P. 33(b)(3). "A party to whom an interrogatory is propounded must provide true, explicit, responsive, complete, and candid answers.'" Walls v. Paulson, 250 F.R.D. 48, 50 (D.D.C. 2008) (quoting Equal Rights Ctr. v. Post Properties, Inc., 246 F.R.D. 29, 32 (D.D.C. 2007)). If a party objects to an interrogatory, it must state its grounds for objection "with specificity." Fed.R.Civ.P. 33(b)(4).

4. Motions to Compel

Rule 37 of the Federal Rules of Civil Procedure provide that "[o]n notice to other parties and all affected persons, a party may move for an order compelling disclosure of discovery." Fed.R.Civ.P. 37(a)(1). A party seeking discovery may move for an order "compelling an answer, designation, production or inspection" from a party who fails to comply with Rules 33 (interrogatories) or 34 (documents requests). Fed.R.Civ.P. 37(a)(3)(A). An "evasive or incomplete disclosure, answer, or response" will be "treated as a failure to disclose, answer, or respond." Fed.R.Civ.P. 37(a)(4). "The party moving to compel discovery has the burden of proving that the opposing party's answers were incomplete." Equal Rights Ctr., 246 F.R.D. at 32 (internal citations omitted).


1. Claimant's Motion to Compel Responses to Claimant's First Set of Requests for Production

Following a period of informal discovery beginning in July of 2014, Claimant served his First Set of Requests for Production on the government on September 19, 2014. Cl.'s Memo. at 18. Unsatisfied with the government's responses to many of its requests, and unable to reach accord with the government informally, Claimant filed his first motion to compel on January 14, 2015. Id. at 16-20. In his motion, Claimaint seeks to compel the government's response, or further response, to 34 requests for production. See Claimant's Pavel Lazarenko's Motion to Compel [Dkt. 336] at 1-3. The resolution of the parties' disputes over those requests for production - whether by agreement of the parties, or adjudication by this Court - follows.

a. Document Request Disputes Resolved By Agreement of the Parties

Perhaps not surprisingly, the parties were far more agreeable when appearing before the Court on Claimant's motion to compel than a review of their briefs would suggest was possible. Most of the parties' disagreements concerning Claimant's first requests for production were resolved by consent of the parties at the May 19, 2015, and May 21, 2015, hearings. The Court commends the parties on their willingness to compromise but notes that it should not have taken the intervention of the Court for those accommodations to have been reached. As another judge on this Court has observed, "[i]t is a waste of this Court's time and resources to adjudicate a dispute that could have been resolved by the parties themselves." U.S. ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., 235 F.R.D. 521, 529 (D.D.C. 2006).

Going forward, the Court instructs counsel to be more diligent in meeting their obligations to work with each other collegially, conscientiously, and in good faith to resolve discovery disputes before they are raised with the Court.[7] Further, prior to the filing of any new discovery motions in this matter, the parties are instructed to first reach out to the chambers of the undersigned to discuss the dispute with the Court and to determine if it can be resolved without formal briefing. Failure to meet either of these obligations, or to comply with the Court's rulings throughout the discovery process, will subject the offending party to the denial of subsequent discovery motions and/or to sanctions. See id. (denying motion to compel for failure to meet and confer in good faith).

For the record and the convenience of Judge Friedman, the Court describes below the parties' agreements concerning Claimant's First Set of Requests for Production, on which basis discovery is presently proceeding pursuant to the July 1, 2015, Amended Scheduling Order.

i. Document Request 1: "Any documents known to the plaintiff which in any way related to the facts and allegations asserted in the Amended Complaint."

Claimant agreed at the May 19, 2015, hearing, that if the government responds to his other document requests, he will deem the government to have satisfied its obligation to respond to Document Request 1. May 19, 2015 Tr. at 58-59. With that understanding, the Court considers Claimant's motion to compel with respect to Document Request 1 resolved.

ii. Document Request 2: "All documents and exhibits Plaintiff intends to use at trial of this matter."

Document Request 8: "All documents that Plaintiff intends to use at Mr. Lazarenko's deposition."

Claimant agreed at the May 19, 2015, hearing, that he was not seeking by Document Requests 2 and 8 to compel the government to identify, mark, and produce in discovery its trial and deposition exhibits at this early juncture in the proceedings. May 19, 2015 Tr. at 59, 121-22. Rather, his stated intent in lodging the requests was to avoid surprise at trial, or at Claimant's deposition, if the government were to withhold documents in discovery it would later seek to use as exhibits because Claimant "just didn't ask the right question." Id. at 59-62, 121. To address this concern, the government agreed at the hearing that it would produce to Claimant, in the regular course of discovery, whatever documents it intends to use as affirmative evidence[8] at trial, or as exhibits at Claimant's deposition, but would not ...

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