Patel v. Rabinowitz ex rel. Lakhani Assocs., LLC

75 Va.App. 663

879 S.E.2d 60

Dakshay PATEL, Virginia Star, LLC, Sun Management Group, Inc., f/k/a Sandesara Management Group, Inc., American Enterprises, LLC d/b/a Sterling Gelatin, Inc., Saib, LLC, and Sterling Oil Resources LLC

v.Receiver Jonathan I. RABINOWITZ EX REL. LAKHANI ASSOCIATES, LLC and Primis Bank, f/k/a Sonabank

Record No. 0034-22-4

Court of Appeals of Virginia, Arlington.

November 1, 2022

Ryan J. Strasser (Timothy L. McHugh ; Abbey M. Thornhill; Troutman Pepper Hamilton Sanders LLP, on briefs), Richmond, for appellants.

Sara E. Kropf (Kropf Moseley PLLC, on brief), for appellee Receiver Jonathan I. Rabinowitz ex rel. Lakhani Associates, LLC.

No brief or argument for appellee Primis Bank, f/k/a Sonabank.

Present: Judges Huff, Raphael and Lorish

OPINION BY JUDGE STUART A. RAPHAEL

We consider here whether a judgment creditor may use the Uniform Interstate Depositions and Discovery Act (UIDDA), Code §§ 8.01-412.8 to 8.01-412.15, to serve an out-of-state document subpoena on third parties in Virginia when the judgment creditor only suspects that those third parties might hold property or assets belonging to the judgment debtor. We conclude that Virginia law does not allow such a post-judgment discovery subpoena, and we reach that conclusion in two steps.

First, UIDDA makes clear that the law of the discovery State—here, Virginia—determines the scope and enforceability of the out-of-state subpoena when served on a person or entity in Virginia. Thus, even if the post-judgment subpoena for documents were permitted in the State where the judgment was rendered, Virginia law determines whether the subpoena is valid as applied to the third party in Virginia.

And second, Virginia law permits a judgment creditor to serve a subpoena duces tecum on third parties under Code § 8.01-506.1 only in aid of debtor's interrogatories, which are permitted only if the judgment creditor can show that the third party holds property of the judgment debtor or owes money to the judgment debtor. We held in Aufforth v. Aufforth , 72 Va. App. 617, 851 S.E.2d 77 (2020), that debtor's interrogatories under Code § 8.01-506 may not be used against a third party unless the third party is shown to be "a debtor to or a bailee of the debtor." Id. at 626, 851 S.E.2d 77. A mere suspicion that the third-party may be holding property of the debtor is not enough. Id. at 627-28, 851 S.E.2d 77. We conclude that the same limitation applies to a subpoena duces tecum issued to a third party under Code § 8.01-506.1. For one thing, the plain language of that statute says that a subpoena duces tecum to a non-party must be for a "proceeding under the provisions of § 8.01-506." Code § 8.01-506.1. For another, Virginia remains in the small minority of jurisdictions that has not generally authorized pretrial discovery procedures to be used in post-judgment efforts in aid of execution.

Because the judgment creditor here concedes that it cannot show that the third parties hold any property or assets of the judgment debtor, the trial court erred in failing to quash the subpoena duces tecum.

BACKGROUND

In August 2011, a state court in New Jersey entered judgment against Anil Patel and Manish Patel ("judgment debtors") for $8.7 million (plus pre- and post-judgment interest) and in favor of Lakhani Associates, LLC.¹ In November 2016, the New Jersey court appointed Jonathan I. Rabinowitz as a receiver to collect the judgment. According to the receiver, the current judgment amount is about $15 million. The receiver's investigation produced information suggesting that the judgment debtors may have engaged in a scheme to defraud the judgment creditors. The receiver asserted that the judgment debtors had "transferred substantial funds and assets to family members and friends as part of their fraudulent scheme to conceal their assets and evade judgment collection."

Appellant Dakshay Patel (who goes by Danny Patel) is a resident of Virginia. He operates various business enterprises in the Commonwealth. Though he shares the same last name, he is unrelated to the judgment debtors. During the New Jersey litigation, the judgment creditors discovered that Danny Patel was paying the judgment debtors’ attorney fees. The judgment creditors and the receiver developed the suspicion that Danny Patel was serving as a conduit to use the judgment debtors’ hidden assets to pay their legal fees.

For his part, Danny Patel submitted an affidavit below stating that he is a successful businessperson with a net worth of $15-20 million. Soon after he moved to the United States in 1978, Danny Patel befriended Manish Patel and his family. Danny Patel asserted that he agreed to guaranty the judgment debtors’ attorney fees in the New Jersey action out of compassion and friendship. He denied receiving any funds "directly or indirectly" from either of the judgment debtors, and he denied helping the judgment debtors hide or launder their money.

Unconvinced, the receiver sought to issue a subpoena duces tecum to Sonabank, located in Virginia, for banking records since January 1, 2016, for the accounts of Danny Patel and various entities in which he has a business interest—appellants Virginia Star, LLC; Sun Management Group, Inc., f/k/a Sandesara Management Group, Inc.; American Enterprises, LLC d/b/a Sterling Gelatin, Inc.; SAIB, LLC; and Sterling Oil Resources LLC (collectively, the "third parties"). To that end, the receiver obtained a document subpoena from the Superior Court of New Jersey and sought to domesticate it in Virginia under UIDDA. In accordance with Code § 8.01-412.10, the receiver filed the subpoena in the Fairfax County Circuit Court, along with the filing fee and a certification under Code § 8.01-412.10(A)(ii) that New Jersey has adopted UIDDA and allows for reciprocal discovery privileges in New Jersey. The Fairfax County Circuit Court clerk issued the subpoena to Sonabank on February 13, 2020, returnable March 11.

Five days before the return date, appellants Danny Patel and the other third parties moved to intervene in the Fairfax County action and to quash the subpoena. The third parties argued that the subpoena was "a harassing fishing expedition." Further proceedings were suspended, however, on account of the COVID-19 pandemic.

Twenty months later, the circuit court granted the third parties’ motion to intervene but denied their motion to quash or modify the subpoena. The court did not accept the third parties’ contention that Virginia law constrains judgment-creditor discovery of third parties. Noting that the New Jersey court deemed similar discovery to be relevant, the circuit court found that the discovery sought here was "not a fishing expedition, and it may lead to admissible evidence." The court also declined to limit the scope of the subpoena, reasoning that "it is a foreign subpoena, and I just don't find that Virginia has jurisdiction to do that." The court denied the third parties’ motion to reconsider and their motion to stay pending appeal.

Although the trial court ordered that Sonabank "comply immediately" with the subpoena, we stayed that order pending resolution of this appeal on the merits. We now reverse.

ANALYSIS

Appellate courts generally review a trial court's ruling on the "grant or denial of discovery requests under an abuse of discretion standard." Temple v. Mary Washington Hosp., Inc. , 288 Va. 134, 139, 762 S.E.2d 751 (2014). The same abuse-of-discretion standard applies to an order refusing to quash a discovery subpoena. Am. Online, Inc. v. Nam Tai Elecs., Inc. , 264 Va. 583, 590, 571 S.E.2d 128 (2002). "Although we review a ruling on discovery for abuse of discretion, a lower court's interpretation of a statute or the rules of the Supreme Court of Virginia presents a question subject to de novo review on appeal." Nimety v. Commonwealth , 66 Va. App. 432, 437, 786 S.E.2d 835 (2016).

A. Virginia law applies under UIDDA to the validity and enforceability of an out-of-state subpoena served in Virginia.

It has taken about a century for the States to reach consensus on the procedure for domesticating an out-of-state subpoena. In 1920, the National Conference of Commissioners on Uniform State Laws (also known as the Uniform Law Commission), adopted the Uniform Foreign Depositions Act (UFDA). See National Conference of Commissioners on Uniform State Laws, Uniform Interstate Depositions and Discovery Act 1 (2007), https://tinyurl.com/25kxf2up (hereafter "Uniform Law Commission"). UFDA provided that when "any mandate, writ or commission" issued from a court of record in a foreign jurisdiction, or when the testimony of a witness was required for a case in a foreign jurisdiction, the witness could "be compelled to appear and testify in the same manner and by the same process as employed for taking testimony in matters pending in the courts of this state." Id. At least twelve States adopted UFDA. Id. Virginia adopted it in 1958. See 1958 Va. Acts ch. 58.

In 1962, the Uniform Law Commission proposed a new uniform law to supersede UFDA, the Uniform Interstate and International Procedure Act (UIIPA). See Uniform Law Commission, supra , at 1. UIIPA contained more detail and addressed more issues than UFDA. Id. But it was not enthusiastically received. Only six jurisdictions adopted it; Virginia did not. Id. In 1977, the National Law Conference withdrew its recommendation to adopt UIIPA because the model law had become "obsolete." Id. at 2.

By 1981, every state had "either a statute or rule providing for the taking of depositions of persons within the jurisdiction for use in an out-of-state proceeding." Timothy L. Mullin Jr., Interstate Deposition Statutes: Survey and Analysis , 11 U. Balt. L. Rev. 1, 3 (1981). But the rules differed considerably, with "thirty-three variations ... among the fifty-one jurisdictions." Id. at 3-4. As one commentator lamented, "Unless one statute can be fashioned and adopted by a great majority of states, the practitioner will remain saddled...