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In re Application of Barnwell Enterprises Ltd.

United States District Court, District of Columbia

July 13, 2017

IN RE APPLICATION OF BARNWELL ENTERPRISES LTD AND JITENDRA CHHOTABHAI PATEL FOR AN ORDER PERMITTING DISCOVERY PURSUANT TO 18 U.S.C. § 1782

          MEMORANDUM OPINION

          G. MICHAEL HARVEY, UNITED STATES MAGISTRATE JUDGE

         This matter was referred to the undersigned for full case management. Petitioners Barnwell Enterprises Limited and Jitendra Chhotabhai Patel (collectively, “Petitioners”) have petitioned this Court for an Order pursuant to 28 U.S.C. § 1782 permitting them to take expedited discovery from Emerging Capital Partners (“ECP” or “Respondent”), a private equity firm manager incorporated in the District of Columbia, to use in litigation currently pending before courts in Uganda and Mauritius, as well as in possible proceedings that Petitioners have yet to initiate in other jurisdictions. See Application for Order Permitting Discovery [Dkt. 1]. After the matter became ripe for adjudication, the Court held a hearing to address the parties' arguments. Upon consideration of the parties' filings and the entire record herein, [1] the Court finds that Petitioners should be permitted to take discovery from ECP in this jurisdiction subject to the time and subject-matter restrictions described below.

         BACKGROUND

         Petitioners seek discovery from ECP in connection with pending lawsuits in Uganda and Mauritius and “possibly other proceedings to be filed in East Africa, the United Kingdom, and other foreign jurisdictions.” See Mot. at 4. The facts from the pending litigation-and from any other litigation that Petitioners may bring related to this application-stem from Petitioners' business dealings in East Africa. To summarize, Petitioner Patel and two others founded an infrastructure construction company, Spencon International Limited (“Spencon”), in Mauritius in 1979. Id. at 5. Petitioner Patel is also the sole shareholder of Petitioner Barnwell Enterprises Limited, a Mauritian private investment company with a shareholding interest in Spencon. Id. at 4. As Spen-con's business across East Africa grew, Spencon's original shareholders decided to increase the company's capital base. Id. at 5-6. Accordingly, in 2006 and 2007, ECP Africa FII Investments LLC (“ECP Africa”), one of ECP's investment vehicles incorporated under the laws of Mauritius, purchased two promissory notes from Spencon for a total of fifteen million dollars that ECP Africa could convert into Spencon common stock after the satisfaction of certain conditions. Id. at 6. ECP, which manages dozens of investments across Africa, manages ECP Africa pursuant to contract and owns less than one percent of its equity. See Resp. at 2.

         In 2009, ECP Africa converted the aggregate principal amount of the promissory notes plus interest into Spencon common stock, which amounted to approximately thirty-eight percent of Spencon's shares. Mot. at 6. At the same time, ECP Africa entered into a number of agreements with the other shareholders-including a put option agreement, a shareholder's agreement, and a share pledge agreement-that provided ECP with the right to require Spencon's original shareholders to buy back all of ECP Africa's shares in Spencon, gave ECP Africa fifty percent control of Spencon's board of directors, and required Spencon's original shareholders to pledge their remaining shares to secure their obligations to buy back ECP Africa's shares under the put option agreement, respectively. Id. at 8. One of Spencon's shareholders did not pledge his shares, which resulted in those shares being dispersed between the remaining shareholders, including ECP Africa. See Patel Declaration [Dkt. 1-2] at ¶ 17. Around this time, Petitioners believe that NP Sharma, one of Spencon's cofounders, stole approximately five million dollars from the company. Id. at ¶ 19. Petitioners allege that ECP Africa failed to act on NP Sharma's alleged theft, took steps to conceal the misappropriated funds, and later worked with NP Sharma to improperly sell off more of Spencon's assets. See Mot. at 6, 10, 12-13.

         In 2011 and 2012, following a series of setbacks between the original shareholders and ECP Africa regarding the business and management of Spencon, a number of shareholders challenged the validity of ECP Africa's three agreements. See Resp., Ex. A [Dkt. 8-2] at ¶ 20. ECP Africa, in turn, exercised its put right option in February 2013 and filed a request for arbitration with the London Court of International Arbitration (“LCIA”), the governing tribunal pursuant to the put option agreement. Mot. at 8; Resp. at 2-3. In February 2014, the LCIA determined that the put option agreement was valid and binding, at around which point ECP Africa exercised its right under the share pledge agreement to transfer the original shareholders' shares to ECP Africa as an award for the execution of the put option agreement. See id.; see also Mot. at 9-12.

         As a result of this transfer, ECP Africa accumulated approximately ninety-eight percent of Spencon's shareholdings. Id. at 13. After acquiring these shares, ECP Africa appointed four individuals to Spencon's board of directors: Carolyn Campbell, Bryce Fort, Andrew Brown, and Namita Shah. Id. at 22. These individuals are high-ranking employees of ECP, not ECP Africa, and have been serving as directors of Spencon since early 2014. Id. at 22-23; see also Reply at 4-5.[2] Petitioners believe that ECP Africa's transfer of shares and its actions while managing Spen-con afterwards were unlawful, and that these four individuals have information related to these decisions in their possession as ECP employees. See Mot. at 12-14; see also Reply at 4-5.

         Accordingly, on May 20, 2015, Petitioner Barnwell Enterprises Limited filed an action in the Supreme Court of Mauritius, Commercial Division, against ECP Africa and several others, not including ECP. See Exhibits to Declaration of Petitioner Patel [Dkt. 1-3] at 44-60. The original complaint alleges that ECP Africa unlawfully misappropriated the original shareholder's pledged shares of Spencon in 2014 and mismanaged Spencon thereafter, and demands fifty million dollars in damages. Id. at 54-58. In an amended complaint filed in Mauritius on January 20, 2017, however, Petitioner Barnwell Enterprises Limited focuses solely on the legality of the transfer of shares, dropping the claim for fifty million dollars in damages and the allegations of mismanagement. See Exhibit D [Dkt. 8-5] at 12-14; see also Exhibit E [Dkt. 8-6] at 2 (“[Petitioner Barnwell Enterprises Limited] will now only canvass the legality of the transfer of the shares.”).[3]

         Likewise, on August 30, 2016, Petitioner Patel filed an action in the High Court of Uganda at Kampala against, among others, ECP Africa, alleging that ECP Africa fraudulently mismanaged Spencon and its assets and employees such that the company is “in a calamitous financial condition threatening its very existence.” Exhibits to Declaration of Petitioner Patel [Dkt. 1-3] at 65. Petitioner Patel also alleges that, due to ECP Africa's mismanagement of Spencon, ECP Africa is liable to several banks in Uganda for any funds due to a number of personal guarantees issued in his name on behalf of Spencon. Id. at 71. Additionally, Petitioners claim to be contemplating bringing another action in a separate foreign jurisdiction, although no such action has been filed. See Mot. at 14.

         Presently before the Court is Petitioners' application for discovery pursuant to section 1782, filed on December 22, 2016. See Mot. Petitioners' application includes twenty-one discovery requests seeking from Washington-based ECP-not ECP Africa-various “oral and documentary (documents and communications) evidence” pertaining to the conduct described above. See Id. at 29, 39-40.[4] Specifically, Petitioners request that ECP provide them with:

1. All documents and communications concerning NP Sharma's misappropriation of Spencon funds.
2. All documents and communications concerning payments to NP Sharma since 2014.
3. All agreements entered into NP Sharma since 2014.
4. All documents and communications concerning efforts to sell Spencon to any third-parties between 2009 and present.
5. All documents and communications concerning the appointment of Grant Ram-nauth, Carolyn Campbell, Namita Shah, Andrew Brown, Bryce Fort, Marc Sullivan, Ron Series, Andrew Ross and Steve Haswell to Spencon's Board of Directors.
6. All documents and communications concerning payments made to directors, managers and officers of Spencon since 2014.
7. All documents and communications concerning expenses charged to Spencon by directors, officers and managers since 2014.
8. All documents and communications concerning bids submitted by Spencon for new business and new contracts obtained since 2014.
9. All documents and communications concerning CRA.[5]
10. All documents and communications concerning the sale of Spencon assets to CRA or any other party.
11. All documents and communications concerning Sanghani.[6]
12. All documents and communications concerning the ...

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