The United States District Court for the Southern District of New York recently issued two decisions of interest addressing 28 U.S.C. Section 1782, which provides for discovery in aid of foreign proceedings. These decisions have significant implications for the entities that may be subjected to Section 1782 discovery, the entities that may request Section 1782 discovery, and under what circumstances discovery will be granted. It should be noted that-although both cases involve judicial confirmation proceedings following an arbitral award-neither case addresses whether Section 1782 may be used to obtain discovery in aid of a foreign arbitration, and this remains an open issue.
Section 1782 allows interested parties involved in foreign legal proceedings to seek discovery from a party located in the United States in aid of those proceedings when certain requirements are met. The criteria for determining whether a party may be subject to Section 1782 are well defined: (1) that the party from whom discovery is sought resides (or can be found) in the district of the district court to which the application is made; (2) that the discovery be for use in a proceeding before a foreign tribunal; and (3) that the application be made by a foreign or international tribunal or "any interested person."1
"Once the statutory requirements are met, a district court is free to grant discovery in its discretion."2The United States Supreme Court has provided guidance in the form of several factors that "bear consideration" in ruling on a Section 1782 request, including: (1) whether "the person from whom discovery is sought is a participant in the foreign proceeding[;]" (2) "the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance;" (3) "whether the § 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States;" and (4) whether the request is "unduly intrusive or burdensome."3
In re Application of Republic of Kazakhstan
In the first recent decision, In re Application of Republic of Kazakhstan, 15 Misc. 0081 (SHS) (S.D.N.Y. June 22, 2015), the court upheld an order granting the Republic of Kazakhstan (ROK) leave to obtain discovery from the law firm of Clyde & Co. LLP pursuant to Section 1782. This decision is significant for two reasons. First, the court upheld an order permitting discovery from an international law firm, holding that, although the discovery sought was located in Clyde & Co.'s London office, the firm resided or was found in the SDNY for Section 1782 purposes due to the existence of Clyde & Co.'s New York office. In determining that the entity from whom discovery was sought resided (or was found) in the district of application, the court noted that Clyde & Co. LLP-which is an entity headquartered in London-resided or was found in the SDNY because it has a New York office (technically a separate entity, Clyde & Co. US LLP), and that the two entities "operate as a single law firm[.]"4 Therefore, according to the court, "Clyde & Co. LLP's partners' daily practice of law in this jurisdiction gives it the requisite 'systematic and continuous' presence to be 'found' here for purposes of [S]ection 1782[,]" and the first statutory requirement was met.5 Although, it should be noted, Clyde & Co. did not object to producing documents, the court's ruling is broad in the sense that it could subject any law firm to discovery under Section 1782, no matter where it or its clients are located, so long as it has an office anywhere in the United States.
Second, in what appears to have been a matter of first impression, the court held that a sovereign is an "interested person" that may seek discovery pursuant to Section 1782. The court noted that, although "[s]everal courts have found that a sovereign is not a 'person' who can be ordered to produce documents pursuant to [S]ection 1782, … those cases do not address whether a sovereign can use [S]ection 1782 toobtain discovery."6 Based on one of the twin aims of the statute-the desire to avoid "an asymmetrical result prejudicial to foreign governments"-the court held that sovereign ROK was an "interested person" for Section 1782 purposes and that the third statutory requirement was met.7 The court then concluded that the discretionary factors favored discovery and upheld the challenged order.
In re Harbour Victoria Investment Holdings Ltd.
In a second recent decision, In re Harbour Victoria Investment Holdings Ltd., Civ. No. 15-MC-127 (S.D.N.Y. June 29, 2015), the SDNY took a more conservative approach, denying discovery on discretionary grounds where the court suspected that the petitioner was seeking to evade an adverse discovery ruling in its ongoing US proceeding and/or engage in a fishing expedition to identify other foreign venues in which to bring suit. This decision is also significant, in that it appears to be the first time a court has denied a Section 1782 discovery request based on an attempt to circumvent domestic(rather than foreign) proof-gathering restrictions. In the Harbour case:
Petitioner Harbour Victoria Investment Holdings Ltd. obtained a favorable award from an arbitration panel in London, England [in October 2014]. It then commenced a proceeding in India to confirm and enforce the English arbitral award there. Two months later, Petitioner commenced a proceeding in New York to confirm and enforce that same English arbitral award here. As part of the U.S. confirmation proceeding, Petitioner sought, but was denied, discovery relating to an apartment located in New York. Petitioner then filed ex parte petitions with this Court's Part 1 Judge seeking the same discovery, but repackaged as petitions pursuant to 28 U.S.C. § 1782 for subpoenas in aid of foreign proceedings, i.e., the Indian confirmation proceeding and other "contemplated" confirmation proceedings in Singapore and the United Kingdom.8
In light of these decisions, it would be prudent for any entity engaged in foreign proceedings to discuss with their outside counsel the risks of being subjected to Section 1782 discovery, and possible ways to mitigate such risks under these new rulings.Although the court doubted that the petitions were actually in aid of foreign proceedings (as opposed to the ongoing US proceeding), the court assumed that the statutory prerequisites were met. Nonetheless, because the court believed that the petitions were an attempt to evade an adverse discovery ruling or were being sought for other improper purposes (i.e., to establish a jurisdictional basis for potential, uncommenced confirmation proceedings in Singapore and/or the United Kingdom), it exercised its discretion and denied the petitions.