Overview

A recent Second Circuit decision provides important guidance on the scope and application of Section 1782, the expansive discovery provision that authorizes district courts to compel parties in the United States to provide evidence for use in foreign proceedings upon the application of any “interested person” involved in the proceeding. First, resolving a split among district courts, the court ruled that there is no bar to the extraterritorial application of the provision. Although the location of the evidence will continue to be relevant to a district court’s analysis, respondents can no longer claim that, as a legal matter, the statute applies only to evidence located in the United States. Second, the court confirmed that jurisdiction over nonparties under Section 1782 extends to the limit of personal jurisdiction consistent with due process, and declined to establish a lower showing of due process for obtaining discovery from nonparties. Finding that the due process inquiry should focus on the nonparty’s contacts with the forum relative to the discovery sought rather than on the underlying cause of action abroad, the court articulated a causal test for determining whether specific personal jurisdiction applies, namely, whether the discovery sought “proximately resulted” from in-forum conduct.

The ruling limits the jurisdictional application of Section 1782 and provides a clear test for determining who may be ordered to provide discovery under the provision. However, for foreign firms with US subsidiaries, the decision provides little comfort, as it confirms that they may be compelled to produce documents and provide access to witnesses located abroad, even if they are nonparties to the proceedings and the burden and expense are considerable.

28 U.S.C. § 1782

Under 28 U.S.C. § 1782, a district court, upon the petition of any “interested person,” may order a person who “resides or is found” in the district to give testimony or produce documents for use in a proceeding in a foreign or international tribunal. To be an “interested person” under the statute, the applicant need not be a party in the foreign proceeding and need only demonstrate a reasonable interest in obtaining judicial assistance.

In its 2004 Intel decision, the Supreme Court provided a set of factors to guide the discretion of district courts in considering whether to grant a Section 1782 petition.1 A number of recent decisions have further interpreted the statute, although significant open questions have remained, including whether the provision could be used to compel production of documents and witness testimony located outside the United States.

The Del Valle Ruiz Petition

Banco Popular Español, SA (BPE), was Spain’s sixth largest bank but deteriorated following the financial crisis and, in mid-2017, sought buyers. Spanish Banco Santander SA (Santander) retained New York-based investment banks to advise it on a potential bid and conducted due diligence. By June 2017, BPE was on the brink of failure, and Spain’s banking regulator stepped in and invited bids. Santander, the only bidder, offered a token bid of one euro, which was accepted. Two groups of investors whose investments in BPE were rendered worthless by the banking regulator’s decision brought legal challenges in the European Union and in Spain.

The investors also filed petitions under Section 1782 in the Southern District of New York (SDNY ) seeking discovery of documents from Santander and several of its US subsidiaries concerning BPE’s liquidity position and discussions with regulators concerning the BPE resolution. Santander objected.

The SDNY and Second Circuit Decisions

US District Court Judge Edgardo Ramos concluded that jurisdiction over Santander was limited by constitutional due process and, thus, only Santander’s US-based securities firm met the requirements of general jurisdiction. With that jurisdiction established, he granted the petition as against the US firm only and ordered it to produce documents, including those located abroad.2

On appeal, the Second Circuit analyzed Section 1782’s jurisdictional requirements and the question of its extraterritorial application, both of which it noted were issues of first impression. It affirmed the decision below on both points and provided additional guidance.3

Noting that “found,” as used in the statute, was not defined, the court first ruled—in agreement with the district court—that the “resides or is found” language extends to the limit of personal jurisdiction consistent with due process. The court rejected petitioners’ argument that a categorically lower showing of due process should be permitted when only seeking discovery from a nonparty.

To determine whether it had specific personal jurisdiction over Santander, the Second Circuit applied a causal test: “where discovery material sought proximately resulted from the respondent’s forum contacts, that would be sufficient to establish specific jurisdiction for ordering discovery.” Applying that test, the court reasoned that, although Santander’s due diligence of BPE took place in New York, that conduct related to earlier efforts to acquire BPE, not the forced sale that was the subject of the discovery request. Accordingly, because there was no required causal connection between the forum contacts and the discovery sought, specific personal jurisdiction could not be established.

In analyzing the question of extraterritorial application, the Second Circuit acknowledged a split among lower courts and its own earlier dicta suggesting that Congress intended the statute only to reach evidence within the United States. It nevertheless found persuasive reasoning from the Eleventh Circuit that, since the Federal Rules of Civil Procedure authorize extraterritorial discovery so long as the documents to be produced are within the subpoenaed party’s “possession, custody, or control,” a district court is “not categorically barred” from allowing discovery under Section 1782 of evidence located abroad. It noted, though, that district courts should consider the location of the evidence when determining t o exercise their discretion to authorize discovery, and it cited to the Second Circuit’s preference for more tailored discovery orders in these circumstances rather than the denial of relief entirely.

Key Takeaways

  • For global firms with US subsidiaries doing business in the Second Circuit, the burden on nonparties resulting from Section 1782 applications may increase as “interested parties” in foreign proceedings are now clearly entitled to seek documents and depose employees located abroad. Arguments based on the location of the discovery sought, while still relevant, will be less compelling on their own and instead should be addressed in the context of the Intel factors, which ask, among other things, whether the request conceals an attempt to circumvent foreign proof-gathering restrictions and whether the request is unduly intrusive or burdensome.
  • For global firms without US subsidiaries or with US subsidiaries that cannot be shown to have custody or control over the materials sought, respondents to Section 1782 petitions should be prepared to articulate the full range of arguments based on the “proximate causation” standard articulated in the Del Valle Ruiz decision to defeat a claim of specific personal jurisdiction. The response should ensure that the court’s attention remains focused on the nexus between the forum and the requested discovery rather than the nexus between the forum and the underlying foreign cause of action.
  • For parties seeking discovery as “interested parties” under Section 1782, the Del Valle Ruiz decision provides additional support for broad application of the provision against firms doing business in New York and elsewhere in the Second Circuit. While Section 1782 is a potentially potent tool for obtaining documents and testimony relating to foreign litigation, a district court is unlikely to view it as a blank check for petitioners, and thus counsel with international investigative expertise should be consulted to assist with drafting comprehensive, viable and persuasive applications.