In re Application of Republic of Turkey

In re Application of the REPUBLIC OF TURKEY for an Under 28 U.S.C § 1782 to Conduct Discovery for Use in Foreign Legal Proceedings

No. 20 C 5012

United States District Court, N.D. Illinois, Eastern Division

July 16, 2021

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, UNITED STATES DISTRICT JUDGE

The Republic of Turkey, a sovereign nation, has filed an application for an order under 28 U.S.C. § 1782 to authorize service of a subpoena on fourteen respondents, a charter school management company and associated entities and individuals. Turkey seeks information that it says is relevant to a money laundering criminal investigation in Turkey. The respondents ask the Court to deny the application. For the following reasons, the Court denies Turkey's application.

Background

According to the section 1782 application, the Republic of Turkey requests the assistance of the Court in obtaining information about Concept Schools NFP, a nonprofit charter school management company that oversees thirty-one charter schools across the United States, including in Illinois and Ohio. Turkey contends that Concept, as well as shell companies and individuals associated with Concept, engaged in criminal offenses under U.S. law-procurement fraud, securities fraud and wire fraud- to finance the international political activities of Fethullah Gulen, an exiled Turkish cleric residing in the United States. The respondents contend that Turkey's application is part of a campaign of political persecution against Gulen and his supporters and that the application is devoid of evidence that the Turkish authorities are conducting a legitimate criminal investigation.

Concept's activities have been the subject of U.S. law enforcement investigations, such as a 2014 False Claims Act investigation by the U.S. Department of Justice (USDOJ), which resulted in a civil settlement, and an FBI fraud investigation, which did not result in criminal charges; Concept has also attracted media attention based on its conduct. See, e.g., Dan Mihalopoulos, Concept Schools charter chain to pay $4.5 million to end federal investigation, Chicago Sun-Times (Nov. 6, 2020, 11:30 AM) https://chicago.suntimes.com/2020/11/6/21552520/concept-schools-charter-school-chain-investigation-settlement. A 2019 audit report by Dave Yost, the Auditor of the State of Ohio, found certain conflicts of interest: numerous individuals who served as board members for Concept-managed schools had overlapping roles as management leaders of Concept's business partners. But there is no indication that either Concept or any of the other respondents have faced criminal charges here in the United States.

Turkey contends that the respondents' claimed criminal activities may give rise to violations of Article 282 of the Turkish Criminal Code, which makes money laundering an imprisonable offense. Its theory is that if Concept or others affiliated with it committed crimes in the U.S. and then sent proceeds of those crimes to Turkey, it would violate Article 282.

There are fourteen respondents in this action, including Concept and charter schools managed by Concept: (1) Concept Schools NFP; (2) Chicago Mathematics and Science Academy, Inc.; (3) Concept Schools NFP d/b/a Horizon Science Academy McKinley Park Charter School; (4) Concept Schools NFP d/b/a Horizon Science Academy Belmont Charter School; and (5) Concept Schools NFP d/b/a Horizon Science Academy Southwest Chicago Charter School. The respondents also include affiliated companies that were awarded vendor service contracts by Concept: (1) New Plan Learning, Inc., a non-profit organization formed by Concept personnel to purchase real estate that is leased to Concept's charter schools; (2) Quality Builders of Midwest, Inc.; (3) Design Furniture and Lab Systems, Inc.; (4) Maestro Corporate Group LLC; and (5) Signature Maker, Inc. Two financial institutions, JP Morgan Chase Bank N.A. and PNC Bank N.A., which possess financial documents concerning some of the respondents, are also named as respondents. Finally, two individuals, Edip Pektas, an Illinois citizen who held leadership positions at Concept schools while also serving as president of Quality Builders an affiliated company to which Concept awarded contracts; and Ridvan Uysaler, an Illinois citizen who is Concept's chief financial officer, are named as respondents. Turkey proposes to subpoena Pektas and Uysaler for depositions.

Turkey alleges that corporate records, construction permits, and other public documents reflect that Concept engaged in corruption, namely insider dealing. For example, it alleges that Concept promised prospective investors that it would award major contracts through an open and competitive bidding process yet awarded multimillion-dollar contracts to favored vendors-"insider individuals and companies"- some of whom are respondents in this case. Pet.'s § 1782 Appl. at 2. According to Turkey, this evidence reveals Concept's practice of "divert[ing] funds away from their intended purpose of educating this country's children"-in other words, children in the United States. Id. at 3. Further, Turkey contends that affiliated insider companies bought and sold real estate from Concept-managed charter schools at prices detrimental to the charter schools' financial well-being. It appears that Concept's claimed selection of favored technology vendors prompted the USDOJ's False Claims Act investigation, which ended in a civil settlement but no criminal charges. See Press Release, U.S. Dep't of Just., Office of Public Affairs, Illinois-Based Charter School Management Company To Pay $4.5 Million to Settle Claims Relating to E-Rate Contracts (Nov. 3, 2020), https://www.justice.gov/opa/pr/illinois-based-charter-school-management-company-pay-45-million-settle-claims-relating-e-rate.

Turkey also argues that the respondents improperly allocated federally funded school lunch program contracts-in violation of U.S. Department of Agriculture rules-to a catering company that shares the same home address as a Concept executive. Pet.'s § 1782 Appl. at 2-3. It also asserts that Concept is committing immigration and visa fraud "in order to generate illicit kickbacks and relocate Turkish supporters of Mr. Gulen into the United States." Id. at 3. Turkey argues that U.S. Department of Labor records indicate that Concept has sponsored hundreds of Turkish individuals for H-1B visas and permanent residence and that these persons are kicking back portions of their salaries to support Gulen. Based on these contentions, Turkey asks the Court to authorize issuance of subpoenas to the respondents to assist in a claimed criminal investigation in Turkey.

Turkey has submitted fourteen proposed subpoenas requesting depositions and document production-including Concept's vendor contracts and related operational agreements, financial statements and transactions, employment records, and H-1B status and visa petitions. In support of its application, Turkey has submitted a declaration from Ankara's chief public prosecutor and a letter from the Turkish Ambassador to the United States; both of these documents describe a pending investigation into Gulen and individuals and entities affiliated with him. Turkey asserts that the discovery it seeks is necessary for the investigation. In opposition, the respondents argue that the discovery requests are overbroad, amount to harassment (for reasons the Court will discuss), and will impose significant burdens and costs on the respondents, which include multiple non-profit organizations and schools.

Turkey filed similar applications in the Southern District of Ohio and the Northern District of Ohio. On January 29, 2021, Judge Polster issued an order partially granting the Republic of Turkey's petition; that petition, which involved different respondents, was similar to the application before this Court but concerned Concept's activities in connection to its Ohio-based charter schools. Minute Order, In re Appl. of the Republic Turkey, No. 20 MC 85 (N.D. Ohio Jan. 29, 2021) (dkt. entry no. 11) (ordering respondents to "produce any all [sic] documents evidencing the flow of funds between respondent's schools and the Republic of Turkey or certify that no such documents exist"). On February 22, 2021, Magistrate Judge Deavers denied a similar application submitted by Turkey. In re Appl. of the Republic of Turkey, No. 20 MC 36, 2021 WL 671518 (S.D. Ohio Feb. 22, 2021).

Discussion

Under 28 U.S.C. § 1782, a district court may authorize the production of documents or testimony for use in a foreign legal proceeding, unless the disclosure would violate a legal privilege. 28 U.S.C. § 1782(a). Section 1782 requires a petitioner to show that: (1) the discovery is sought from a person residing in the district of the court to which the application is made; (2) the discovery is for use in a proceeding before a foreign tribunal; and (3) the applicant is a foreign or international tribunal or an "interested person."

The U.S. Supreme Court's decision in Intel Corp. v Advanced Micro Devices, Inc., 542 U.S. 241 (2004), is the leading authority on evaluating section 1782 applications. In Intel, the Supreme Court concluded that even if an application meets the statutory requirements under section 1782, the district court's decision to grant the application is discretionary. Id. at 255. A district court should assess the following factors in determining what discovery, if any, to allow:

(1) whether "the person from whom discovery is sought is a participant in the foreign proceeding";

(2) "the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S federal-court judicial assistance";

(3) whether the

...