In re: Application of Antonio del Valle Ruiz and Others for an Order to Take Discovery for Use in Foreign Proceedings Pursuant to 28 U.S.C. § 1782, No. 18-3474 (2d Cir. Oct. 7, 2019) [click for opinion]

In June 2017, Banco Santander S.A. ("Santander") acquired Banco Popular Español, S.A. ("BPE") after a government-forced sale. Although BPE was Spain's sixth-largest bank at the time, it also had many toxic and nonperforming assets because of the 2008 financial crisis and, while addressing these exposures, business conditions began to decline at the end of 2016 because government entities began to make large withdrawals. In May 2017, BPE contemplated a private sale and created a virtual data room for interested buyers, which included Santander. After completing its due diligence, Santander purportedly was prepared to offer to buy BPE for €3 billion, with an additional capital injection of €4 billion.

On June 6, 2017, the European Central Bank informed the European Single Resolution Board that BPE was failing or likely to fail. BPE had suffered an all-out run on deposits after reports it was a bankruptcy risk. That same day, and at the direction of the Single Resolution Board, Spain's national banking supervisory authority ("FROB") invited several banks, including Santander, to submit bids by midnight, seemingly pursuant to a resolution. Only Santander submitted a bid, and that bid was for one Euro. On June 7, 2017, it was publicly announced that Santander's bid had been accepted.

As a result of BPE's resolution, a group of 55 Mexican investors in BPE (the "del Valle Ruiz Petitioners"), as well as 2 US-based investment and asset management firms (the "PIMCO Petitioners") suffered significant financial losses. Both sets of petitioners brought legal challenges to the BPE resolution in the Court of Justice of the European Union, while the del Valle Ruiz Petitioners brought an international arbitration against Spain, and the PIMCO Petitioners sought to intervene in Spanish criminal proceedings against BPE.

Section 1782 ("§ 1782") is a provision that authorizes discovery in aid of foreign proceedings. The del Valle Ruiz Petitioners filed a § 1782 application in the Southern District of New York seeking discovery from Santander and its wholly-owned subsidiaries Santander Holdings U.S.A., Inc. ("SHUSA") and Santander Bank, N.A. ("SBNA"). Petitioners sought documents relating to BPE's liquidity position, both the private-sale and government-sale process, and communications with regulators concerning BPE or the BPE resolution. The PIMCO Petitioners filed a § 1782 application against Santander, SHUSA, SBNA, and Santander Investment Securities Inc. ("SIS") seeking similar documents. The two cases were consolidated and the district court only granted the PIMCO Petitioners' request for discovery from SIS. All other requests were denied.

On appeal, the parties disputed the proper interpretation of § 1782's requirement that a respondent "resides or is found" in the district in which discovery is requested. Petitioners argued that § 1782's use of the word "found" is coextensive with the limits of personal jurisdiction consistent with due process, meaning that § 1782's reach extended to specific jurisdiction. Santander argued that § 1782's "found" language must be restricted to general "tag" jurisdiction consistent with the Second Circuit's opinion in In re Edelman. Santander also contended that § 1782 does not reach evidence located abroad and the district court abused its discretion by allowing discovery against SIS.

The Second Circuit, reviewing de novo, held that: (i) Section 1782's requirement that a person or entity "resides or is found" within the district in which discovery is sought extends 1782's reach to the limits of personal jurisdiction consistent with due process, and (ii) there is no per se bar to the extraterritorial application of Section 1782.

On the jurisdiction issue, the court concluded that, consistent with Congress's intent that § 1782 be interpreted broadly and the consistently broad interpretation given to similar "found" language, the statutory scope of "found" extends to the limits of personal jurisdiction consistent with due process. While the court found in Edelman that tag jurisdiction was sufficient to satisfy § 1782's "found" requirement, the court did not conclude that tag jurisdiction was necessary to satisfy § 1782. The court emphasized that its focus on tag jurisdiction comporting with due process in no way suggested that § 1782's reach should be coextensive only with the limits of a district court's general jurisdiction. The Second Circuit also rejected the concept that there was some lower jurisdictional bar for proceedings seeking discovery than for cases brought against defendants.

The court next examined whether Santander's contacts were sufficient to subject it to the district court's specific personal jurisdiction. The court noted that the exercise of specific jurisdiction depends on in-state activity that gave rise to the episode-in-suit. Translated to account for a § 1782 respondent's non-party status, the court held 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. That is, the respondent's having purposefully availed itself of the forum must be the primary or proximate reason the evidence sought is available at all. On the other hand, where the respondent's contacts are broader and more significant, a petitioner need only demonstrate that the evidence sought would not be available but for the respondent's forum contacts."

Applying these conclusions to the facts, the court found that, with one exception, Santander's related forum contacts all postdated the acquisition of BPE and could not be but-for "causes" of the availability of the evidence sought in discovery. Santander's use of UBS and Citibank in New York to conduct due diligence for the private sale of BPE was connected to the discovery sought, but the court held that Petitioners had failed to show this contact was the proximate reason the evidence sought was available. Petitioners' claim (and the bulk of discovery sought) arose from the forced sale of BPE, which is separate from the in-forum conduct relating only to BPE's pre-resolution efforts to seek a buyer. The Second Circuit therefore affirmed the district court's holding that it only had jurisdiction over SIS.

With respect to the extraterritorial issue, the court concluded that there is no per se bar to the extraterritorial application of Section 1782 and that the district court acted within its discretion when permitting discovery from SIS. The Second Circuit rejected the application of the presumption against extraterritoriality to a "strictly jurisdictional" statute such as § 1782. Noting a split at the district court level, the Second Circuit joined the Eleventh Circuit in holding that the location of responsive documents and electronically stored information – to the extent a physical location can be discerned in this digital age – does not establish a per se bar to extraterritorial discovery under § 1782. The court relied on the same plain-meaning interpretation that the Eleventh Circuit had followed:

The text of § 1782 authorizes discovery pursuant to the Federal Rules of Civil Procedure. The Federal Rules of Civil Procedure in turn authorize extraterritorial discovery so long as the documents to be produced are within the subpoenaed party's possession, custody, or control. Hence § 1782 likewise allows extraterritorial discovery.

Thus, a district court is not categorically barred from allowing discovery under § 1782 of evidence located abroad, but can and should consider the location of documents and other evidence when exercising its discretion to authorize such discovery. Applying the four Intel factors, the court concluded that the district court did not abuse its discretion in permitting discovery from SIS.