Tayler Eynon
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
The Bankruptcy Court for the Southern District of New York was presented with two issues related to a subpoena target’s refusal to comply in In re Three Arrows Capital, Ltd. First, whether the Foreign Representative’s service of a subpoena by alternative means of service, specifically email and social media, was reasonably calculated to provide notice.[1] Second, whether the issue of personal jurisdiction must be addressed before compelling compliance with the subpoena.[2]
Three Arrows Capital, Ltd. (“the Debtor”) was an investment firm founded by Kyle Livingstone Davies (“Davies”) and Su Zhu (“Zhu” and collectively with Davies, “the Founders”).[3] The firm was incorporated in the British Virgin Islands (“BVI”) and focused on trading cryptocurrency and other digital assets.[4] Due to the “extreme fluctuations in cryptocurrency markets,” however, the Debtor’s business collapsed.[5] Accordingly, the Debtor commenced a liquidation proceeding in a BVI court, and the court appointed joint liquidators (the “Foreign Representatives”).[6]
After the Founders could not be located in the United States, the Foreign Representatives commenced a case under chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”) and filed a motion seeking to issue subpoenas on the Founders (“Subpoena Motion”) and a motion seeking to serve the Founders by social media as an alternative means of service (“Service Motion”).[7] At a hearing on the motions, the court concluded that the Foreign Representatives failed to support the issuance of a subpoena against Zhu—a foreign national residing abroad.[8] However, the court allowed for service of a subpoena on Davies—a U.S. citizen residing abroad.[9]
In granting the motions as to Davies, the court found that Rule 45 and 28 U.S.C. § 1783 supported the service of the subpoena on Davies and concluded that alternative service via email and social media, namely Twitter, would be “warranted and reasonably calculated to provide notice.”[10] Thereafter, the Foreign Representatives served a subpoena (the “Subpoena”) on Davies by email and Twitter on January 5, 2023.[11] Davies failed to comply with the Subpoena by the January 26, 2023 deadline, and so the Foreign Representatives moved to compel compliance with the Subpoena by filing a motion to compel on February 7, 2023.[12] Davies did not respond to the motion to compel and failed to appear at a hearing on the motion.
First, the court found that due process requires service of a subpoena to be “reasonably measured to [e]nsure the actual receipt of the subpoena.”[13] Here, the service of the Subpoena was “adequate” under the Federal Rules and due process rights.[14] The Subpoena was served via email to the same email address the Foreign Representatives were provided “for the purpose of fielding . . . discovery questions.”[15] And, the Subpoena was also served to Davies’ Twitter account which the court has found “highly likely” to have provided notice of the Subpoena for three reasons: (1) Davies’ Twitter account has posted frequently since the date of service; (2) the posts appear to be from Davies himself; and (3) there has been additional activity—tweets and retweets—that drew attention to the Subpoena for a “frequent Twitter user like Davies.”[16]
Second, the court found that judicial economy would not be served by a sua sponte personal jurisdiction analysis of the facts at bar.[17] A court must typically find personal jurisdiction to compel compliance with a discovery request.[18] However, a case addressing sua sponte consideration of personal jurisdiction “does not require courts to consider the issue at the default judgment stage.”[19] Here, by not appearing, Davies has failed to articulate reasons why he need not adhere to discovery requests in the United States.[20] Thus, the risk of “impermissibly asserting hypothetical arguments on Davies’ behalf,” and making Davies “better off” as a result, is enough to avoid addressing personal jurisdiction.”[21] Davies had the opportunity to appear and challenge personal jurisdiction but chose not to utilize this right.[22]
In conclusion, the request to serve the Subpoena through an alternative means on Davies was “reasonably measured” to provide notice in accordance with due process.[23] Thus, the court need not make an “affirmative finding that personal jurisdiction exists before compelling compliance with the Subpoena” when the subpoenaed party has failed to challenge personal jurisdiction.[24] In re Three Arrows Capital, Ltd. illustrates how Foreign Representatives in a chapter 15 bankruptcy proceeding were allowed to serve an unresponsive, uncooperative U.S. citizen who was an active user of social media with a subpoena via social media while overseas.
[1] In re Three Arrows Cap., Ltd., 649 B.R. 143, 146 (Bankr. S.D.N.Y. 2023).
[2] Id. at 147.
[3] In re Three Arrows Cap., Ltd., 647 B.R. 442 (Bankr. S.D.N.Y. 2022).
[4] Id.
[5] Id. at 443.
[6] Id.
[7] In re Three Arrows, 649 B.R. at 146 (“Through the Subpoena Motion and Service Motion, the Foreign Representatives sought relief related to discovery from Debtor’s Founders.”).
[8] In re Three Arrows, 647 B.R. at 447 (Zhu was born in China and holds a Singaporean passport issued in 2020. Allowing service in this manner would render Rule 45 obsolete).
[9] In re Three Arrows, 649 B.R. 143, 146 (Bankr. S.D.N.Y. 2023) (“[T]he court held that the Foreign Representatives had shown that Rule 45 and 28 U.S.C. § 1783 allowed for service of a subpoena on Davies outside the United States.”).
[10] Id.
[11] Id.
[12] Id. at 145–46 (stating that Davies failed to produce documents or respond to the subpoena).
[13] Id. at 147.
[14] Id.
[15] Id.
[16] Id. at 147–48.
[17] Id. at 152–53.
[18] Id. at 148.
[19] Id. at 151–52 (holding that cases which address the question of personal jurisdiction do so to achieve judicial economy, which is largely dependent on the individual circumstances of each case).
[20] Id. at 154.
[21] Id. at 153–154 (“In bankruptcy cases, assuming valid service of process [and a defendant’s due process rights have been met], the only remaining inquiry for a bankruptcy court is whether exercising personal jurisdiction over the defendant would be consistent with the Due Process Clause of the Fifth Amendment.”).
[22] Id. at 152 (“[W]hen a defendant fails to appear, [i]t . . . handicaps the plaintiff by depriving her of discovery that she would have had if the defendant had not defaulted.”).
[23] Id. at 147, 155.
[24] Id. at 150.