Thani A.T. Al Thani v. Hanke

Background

The court held a conference under Local Rule 37.2 about the defendants’ objection to the plaintiff’s request for documents concerning their assets. The defendants were Alan J. Hanke and IOLO Global LLC, referred to in the order as the “Hanke Defendants.” The court directed them to explain whether they continued to object, and the plaintiff was allowed to respond.

The Hanke Defendants argued that pre-judgment asset discovery is generally unavailable because a defendant’s financial condition or ability to satisfy a possible judgment is not ordinarily relevant to the claims or defenses. They also argued that the plaintiff had to satisfy the heightened standard used for expedited discovery. In a later letter, they argued that discovery should not proceed while their motion to dismiss was pending because disclosure of sensitive information would prejudice them.

The plaintiff responded that he was seeking the asset information to investigate and prove his corporate-veil-piercing or alter-ego claims, rather than to determine whether the defendants could pay a judgment.

Court’s analysis

The court agreed that a plaintiff generally may not seek pre-judgment asset discovery merely to investigate a defendant’s ability to satisfy a judgment. But it found that the discovery requested here was adequately related to alter-ego liability. Under Federal Rule of Civil Procedure 26, discovery may cover information relevant to a claim or defense and proportional to the needs of the case.

The court identified factors relevant under New York law to an alter-ego claim, including intermingling of corporate funds, undercapitalization, and failure to maintain separate books, records, or other legal formalities. The court found that the plaintiff had repeatedly alleged that IOLO Global LLC acted as Hanke’s alter ego and had made a sufficient initial showing supporting those allegations. It therefore concluded that pre-judgment asset discovery was relevant and reasonably calculated to lead to admissible evidence on alter-ego liability.

The court rejected the defendants’ argument that a judgment or finding of liability had to come before asset disclosure. It also found no support for applying the heightened expedited-discovery standard and said it was not clear why that standard would apply. Finally, the court characterized the request to delay discovery until the motion to dismiss was decided as an attempt to relitigate its earlier denial of a request to stay discovery.

Disposition

The court ordered the Hanke Defendants to respond by March 24, 2021 to the plaintiff’s request for documents identifying their assets. This order addressed discovery and did not decide the pending motion to dismiss or the ultimate merits of the alter-ego claims.