Seeking US Discovery for Foreign Proceedings: The Second Circuit Opens US Style Discovery to the World

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Earlier this month, the Second Circuit issued a decision in In re Application of Antonio Del Valle that significantly expands the ability of parties to foreign legal proceedings to obtain discovery through United States courts. In Antonio Del Valle, the Second Circuit reached two key conclusions that work to expand the reach of discovery by U.S. courts under 28 U.S.C. § 1782. 

Second 1782 provides that "[t]he district court of the district in which a person resides or is found may order him to . . . produce a document or other thing for use in a proceeding in a foreign or international tribunal." The two questions in Antonio Del Valle were how to determine whether a person "resides or is found" in a district and whether courts may order documents produced that are not within the United States.

Antonio Del Valle involved the sale of a failing Spanish bank, BPE, to Santander for a single Euro pursuant to a government-ordered sale. The petitioners lost money in the sale and sued the government. They then sought discovery from Santander, a Spanish bank based in Madrid, as well as Santander Investment Securities, Inc. ("SIS"), a New York affiliate of Santander. Prior to the sale, Santander had used two New York based firms, UBS and Citibank, to conduct due diligence into BPE.

Section 1782 Applies to the Full Limit of Constitutional Due Process

The Second Circuit's first conclusion was that the phrase "resides in or is found" applies to the full extent of constitutional due process. That is, Section 1782 applies if the Court has either general or specific jurisdiction over the party from whom discovery is sought. General jurisdiction exists if the company is "at home" in the jurisdiction, and so will generally only apply to companies who are incorporated in a jurisdiction or have their principal place of business there.

For specific jurisdiction, the Second Circuit adopted a new test for purposes of 1782--since the petition was only seeking discovery from a non-party rather than liability against a defendant. It said that "where the discovery material sought proximately resulted from the respondent's forum contacts, that would be sufficient to establish specific jurisdiction for ordering discovery. . . . [W]here the respondent's contacts are broader and more significant, a petitioner need demonstrate only that the evidence sought would not be available but for the respondent's forum contacts."

In this case, the petitioners sought evidence regarding the sale of BPE. The only forum contacts by Santander had been for purposes of due diligence prior to the sale, so the Second Circuit concluded that this was not a close enough relationship to the evidence regarding the later sale to provide specific jurisdiction.

In one respect, this means that the Second Circuit is not providing full discovery powers against foreign corporations such that any contact with the United States will render them open to U.S. discovery. But if the actual discovery sought is related to contacts with the United States, then U.S. courts may order discovery of the foreign corporation solely based on those contacts.

Extraterritorial Discovery is Fully Allowed

The Second Circuit's next conclusion was that there is no per se bar on obtaining discovery outside of the United States through Section 1782. Thus, the Court upheld an order that SIS, Santander's U.S. subsidiary (over which there was general jurisdiction), should be ordered to produce documents from outside the United States relating to the case.

The Second Circuit quoted the observation of the late Professor Hans Smit that if this was allowed, "American courts would become clearing houses for requests for information from courts and litigants all over the world in search of evidence to be obtained all over the world." The Court noted that because the plain meaning of the statute did not exclude extraterritorial discovery, and the presumption against extraterritoriality had never been applied by the Supreme Court to a "strictly jurisdictional" statute, such considerations were "insufficient to win the day."

Ultimately, this decision places U.S. companies doing business overseas at a significant disadvantage in international litigation--one ripe for foreign litigants to take advantage of. If a U.S. company or its foreign subsidiary is engaged in a foreign lawsuit, Section 1782 opens them up to full U.S. style discovery of their world-wide documents. And given the limits on discovery in foreign proceedings, it may be far easier to get such documents ordered by a U.S. court.

Much Falls to the Court's Discretion

The result of these expansions is that much more emphasis is placed upon the trial court's discretion. This largely focuses on the Intel factors, including (1) whether the respondent is a party in the foreign litigation (in which case there may be less need for discovery), (2) whether the foreign proceeding would be receptive to the evidence, (3) whether the request is an attempt to circumvent restrictions on discovery, and (4) whether the request is unduly intrusive or burdensome.

In Antonio Del Valle, the trial court failed to specifically analyze these factors, but the Second Circuit upheld the decision in any event, clearly placing the burden for proving that there should not be discovery on the party from whom discovery is sought. ("[T]here is no evidence that the foreign proceedings would be unreceptive to the evidence.").

With world-wide U.S. discovery now available, much more emphasis will fall to the trial court's discretion, and parties must explain with specificity why U.S. style discovery should not be taken in aid of the foreign proceeding. 

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