A recent decision by the US Court of Appeals for the Second Circuit expands the scope of discovery that foreign litigants may seek in the United States for use in foreign proceedings. Under 28 U.S.C. § 1782, a petitioner is allowed to obtain evidence through a federal district court “for use in a proceeding in a foreign or international tribunal.” The Second Circuit has now held that a district court may issue a subpoena under Section 1782, even if the evidence sought would not be admissible in the foreign proceeding. This ruling, reversing a decision by Judge Hellerstein of the Southern District of New York, may impose greater discovery obligations on US entities in response to requests from foreign litigants.
The case, Brandi-Dohrn v. IKB Deutsche Industriebank AG, relates to a securities fraud action brought in German court by a shareholder against the German bank IKB. Plaintiff Brandi-Dohrn alleged that IKB failed to disclose the extent of its exposure to collateralized debt obligations backed by subprime mortgages. The German trial court dismissed the case. Brandi-Dohrn asked the US court to issue Section 1782 subpoenas to three American non-parties to obtain documents for use in the German appeal and also by other clients in similar suits against IKB.
Section 1782 provides, in relevant part, that
The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal including criminal investigations conducted before formal accusations.
Judge Hellerstein quashed the subpoenas on the ground that the evidence sought by Brandi-Dohrn was unlikely to be admitted by the German appellate court and, therefore, was not “for use” in a foreign proceeding.
The Second Circuit reversed, noting that courts have rejected the “foreign discoverability rule,” which would bar a district court from ordering the production of evidence that would not be discoverable in the foreign jurisdiction. The Second Circuit saw no reason why a “foreign admissibility rule” should not suffer the same fate, consistent with decisions from the First, Third and Ninth Circuits.
The court also reasoned that there is no statutory or policy basis to graft an admissibility requirement onto Section 1782. According to the court, that would frustrate the twin goals of the statute—to assist foreign tribunals in obtaining relevant information and to encourage foreign jurisdictions to provide reciprocal assistance to American courts. Further, the court warned that requiring US courts to interpret foreign law on admissibility could “be fraught with danger.”
The decision creates substantial uncertainty in the realm of Section 1782 discovery and a very real potential for abuse. The Second Circuit acknowledged several guiding factors that a district court may consider in ruling on a Section 1782 application, including whether the subpoena recipient is a participant in the foreign proceeding, the nature of the proceeding, the receptivity of the foreign government or court to US judicial assistance, whether the application attempts to circumvent foreign proof-gathering policies, and whether the request is unduly burdensome.
In the same breath, however, the court stated that foreign admissibility and discoverability are not relevant. A district court faced with a Section 1782 application, then, risks reversal by denying that application on the basis of foreign law. At the very least, the decision creates ambiguity surrounding a district court’s discretion to deny Section 1782 requests. At most, it requires courts to grant the applications absent strong evidence of bad faith.
Whatever Brandi-Dohrn’s effect, the ambiguity gives rise to the potential for abuse at the hands of foreign litigants. The US system of discovery is far more expansive than that of most foreign jurisdictions. By removing considerations of foreign admissibility from the Section 1782 analysis, the decision might inspire foreign litigants to use US federal courts as a back door to gain access to information not available to them in their forums. Moreover, there is nothing preventing opportunistic plaintiffs from initiating foreign proceedings precisely to take advantage of Section 1782 discovery, with an eye toward building ammunition for a later action against the defendant. Indeed, this was the trial court’s concern in Brandi-Dohrn, where Judge Hellerstein suspected the German plaintiff’s counsel of using Section 1782 to conduct a “fishing expedition more suitable for harassment and possible use in the many other cases that are pending or sought to be brought against [the US bank].”
A bank presented with a Section 1782 discovery request faces an uncertain road. Compliance with such a request can be exceptionally expensive, require disclosure of sensitive or private information, and possibly expose the entity to future liability. After Brandi-Dohrn, that bank can no longer argue that the information is not available to the requestor in the foreign proceeding in which the evidence is supposedly “for use.” Given the ambiguity surrounding the role of US courts in analyzing Section 1782 requests and the serious consequences of having to comply, opposition to such requests must be carefully crafted. Courts will be wary of granting motions to quash on the basis of foreign judicial considerations and a denial of a motion to quash will be reversed only upon a finding that the court “abused its discretion.”
Time will tell the practical effect of Brandi-Dohrn on US-based entities from which discovery is sought by foreign litigants. What is clear is that more than ever, for those confronted with Section 1782 requests, the stakes are high.