In the United States, unlike in many civil law jurisdictions, the federal courts are vested with broad civil subpoena power. That power, however, is limited by the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1602-1611, which exempts most foreign states and their “instrumentalities” from the jurisdiction of the U.S. Courts.
In January 2009, the Korean Ministry of Finance and Economy (MOFAE) decided to release the Financial Supervisory Service of the Republic of Korea (FSS), the nation’s principal financial regulator, from its prior designation as “public institution” in order “to secure [its] autonomy and independence … from the government.” In a recent decision, the U.S. District Court declined to rule whether that decision by the MOFAE caused the FSS to lose its FSIA exemption.
Three years prior, the U.S. Court of Appeals for the Second Circuit had ruled that the FSS did
have sovereign immunity, finding that it “has oversight duties similar to this country’s Securities and Exchange Commission.” Peninsula Asset Mgmt. (Cayman) v. Hankook Tire Co.
, 476 F.3d 140, 142 (2d Cir. 2006). The Court of Appeals came to that conclusion by applying the five-factor test set forth in Filler v. Hanvit Bank
, 378 F.3d 213, 217 (2d Cir. 2004), a case in which the Court granted FSIA status to the Korean Deposit Insurance Corporation.
In 2017, however, plaintiff Karen C. Han sought to revisit Peninsula Asset Mgmt.
in light of the MOFAE’s 2009 decision. She filed a declaratory judgment action in the U.S. District Court for the Southern District of New York (Manhattan), a district in which the FSS maintains an office. Han v. Financial Supervisory Service,
The 2017 case is the latest chapter in a fifteen-year legal battle between plaintiff Han and non-party Hankook Tire Co., Ltd. (Hankook), a South Korean corporation with facilities in Ohio. In 1988, a corporation known as Peninsula Asset Management (Cayman) Ltd. (Peninsula), of which Han was the sole shareholder, had contracted with Hankook to place certain zero coupon notes issued by a Malaysian investment company. Hankook’s acquisition of the notes allegedly caused Peninsula to inadvertently violate South Korean money laundering laws.
Han and Peninsula responded by bringing suit against Hankook in Texas and Ohio, asserting contractual indemnity and other causes of action. In March, 2005, the plaintiffs in the Ohio action served the FSS with a subpoena in New York seeking testimony and documents about the FSS’s investigation of the matter. When the FSS declined to comply with the subpoena, the District Court denied the plaintiffs’ motion to hold the FSS in contempt. On appeal, the Second Circuit affirmed that denial, holding that: “FSS is entitled to foreign sovereign immunity” since it is “an agency or instrumentality of a foreign state.” Peninsula
, 476 F.3d at 143-44.
Deprived the evidence they claimed to need from the FSS, Han and the other plaintiffs lost their case against Hankook. Last year, however, Han returned to Court, seeking a declaration that FSS was no longer a sovereign subject to immunity, but rather was now required to comply with her subpoena. The FSS responded by moving to dismiss Han’s action, claiming it remained exempt from federal court jurisdiction under FSIA.
In support of its motion, the FSS submitted, inter alia
, the affidavit of Seong Taek Shin, who served as Korea’s Chief Justice of the Supreme Court from 1994-2000. Mr. Shin explained that the FSS remains a “quasi-government supervisory authority” under Korean law, and thus is still subject to FSIA immunity under American law.
The District Court referred the FSS’s motion to the Magistrate, who recommended that the case be dismissed on the ground that the case did not present an “actual case or controversy” as required by Article III of the U.S. Constitution and the Declaratory Judgment Act, 28 U.S.C. § 2201(a). According to the Magistrate: “Plaintiff Han has also put the cart before the horse. At the time she filed this action, she had no case pending against Hankook, in any jurisdiction, and therefore no means of obtaining or serving a subpoena upon FSS.”
On February 8, 2018, the District Court issued a Decision and Order adopting the Magistrate’s Report, finding that “plaintiff must clear a number of hurdles [in the Ohio action against Hankook] before the foreign sovereign immunity question posed by her putative declaratory judgment action can cross the line from an abstract question to an actual controversy.” In so ruling, the District Court left unresolved the underlying question of whether the FSS still qualifies for exemption under FSIA.
Meanwhile, Hankook has recently moved to dismiss Han’s latest complaint on a number of substantive grounds. That motion is pending. Han v. Hankook Tire Co., Ltd.
, 5:17-CV-02046. If it is granted, then the FSIA question will remain unanswered for the foreseeable future.
For now, the FSS remains a state instrumentality, immune from discovery in the U.S. courts. That, however, does not limit voluntary
intergovernmental requests. For example, in 2015, the U.S. Commodity Futures Trading Commission executed a Memorandum of Understanding with the FSS and the Korean Financial Services Commission to cooperate and exchange “information in the supervision and oversight of clearing organizations that operate on a cross-border basis in both the United States and the Republic of Korea.” And, just a few weeks ago, the New York State Department of Financial Services asked the FSS and Korea’s Financial Intelligence Unit to provide it with crypt-currency data from six major Korean banks.
As a result, it is conceivable that FSS materials and information exchanged in this manner may yet find their way into U.S. litigation.
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