BRANDI–DOHRN v. IKB DEUTSCHE INDUSTRIEBANK AG

On March 6, 2012, the United States Court of Appeals for the Second Circuit reversed the District Court’s ruling that discovery could not be “for use” in the German tribunal because it was unlikely to be admitted in the foreign jurisdiction. Brandi–Dohrn a shareholder of IKB Deutsche Industriebank AG (“IKB”), a bank located in Germany filed an action in Germany against IKB to seek recovery for securities fraud.  Brandi–Dohrn  allaged that IKB misled him into purchasing its shares by failing to disclose its significant exposure to collateralized debt obligations (“CDOs”) backed by United States based subprime mortgages.

In August 2010, the German trial court (the “Landgericht”) dismissed the case and, in November 2010, Brandi–Dohrn appealed the action to the German intermediate appellate court (the “Oberlandesgericht”). The German appellate court was expected to hear the appeal in February 2012.

Prior to the Oberlandesgericht trial, Brandi–Dohrn sought subpoenas on three nonparties requesting documents and depositions relating to the issue of whether IKB was aware that its substantial exposure to subprime mortgage-backed CDOs created material risks that should have been disclosed to its investors for use in the German lawsuit.

The District Court halted the discovery when the Court ruled that the requested discovery could not be “for use” because it was unlikely to be admitted in the foreign jurisdiction.

The Court of Appeal, reversed the District Court’s holding and permitted discovery, “… a district court should not consider the discoverability of the evidence in the foreign proceeding, it should not consider the admissibility of evidence in the foreign proceeding.” Thus, even though it was unlikly that Brandi–Dohrn could use the evidence in the German action, he was still permitted to conduct discovery.

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