On October 7, 2019, the Second Circuit Court of Appeals issued an opinion that stands to significantly broaden the scope of discovery available to foreign litigants seeking evidence from persons or entities located within the U.S. With this increase in scope comes an increase in the potential burden domestic entities must bear when responding to discovery requests in aid of foreign proceedings.
In In re Application of Antonio del Valle Ruiz ("In re del Valle Ruiz"), the Second Circuit upheld a district court decision to grant a Section 1782 discovery application made by foreign litigants seeking evidence from a New York banking affiliate. Addressing issues of first impression in the Second Circuit, the three-judge panel (Barrington, J., Hall, J. and Droney, J.) refused to limit the scope of available discovery to evidence located within the U.S., finding that the presumption against extraterritoriality does not apply to Section 1782 discovery applications.
Section 1782 of the U.S. Code has become a useful tool to assist foreign litigants in their efforts to obtain discovery from a person or entity located in the U.S. in aid of a foreign proceeding. As a general matter, Section 1782 permits a district court, on application by a foreign tribunal or any interested party, to order discovery against a person or entity that either "resides" or "is found" in the district where the application is made. Following the Second Circuit's recent decision in In re del Valle Ruiz, the applicability of Section 1782 discovery has significantly broadened to reach evidence located not only inside but also outside U.S. borders. No. 18-3226, 2019 WL 4924395, at *8 (2d Cir. Oct. 7, 2019).
In re del Valle Ruiz stems from the demise of Banco Popular Español, S.A. ("Banco Popular"), the sixth largest bank in Spain. In 2017, Spanish bank regulators invited several banks to bid on the failing Banco Popular through a forced sale process directed by the European Union's Single Resolution Board. The sole bidder was Banco Santander, S.A. ("Santander"), which purchased the bank for one euro.
The petitioners - Pacific Investment Management Company LLC and Anchorage Capital Group, LLC (the "PIMCO Investors") – are two former investors in Banco Popular that claim to have lost over one billion euros as a result of the forced sale. After commencing legal actions before multiple foreign tribunals, including the General Court of the Court of Justice in the European Union, the PIMCO Investors filed Section 1782 applications in the Southern District of New York (SDNY) seeking discovery from Santander and three of its affiliates for use in those foreign proceedings.
The SDNY granted the PIMCO Investors' application in part, finding that the PIMCO Investors could obtain discovery from one particular Santander affiliate headquartered in New York City, Santander Investment Securities Inc. (SIS), because SIS was subject to the court's general jurisdiction and, therefore, was "found" within the district. Moreover, the SDNY refused to impose a per se bar against Section 1782 discovery of evidence from SIS located abroad. However, the SDNY denied the PIMCO Investors' application with respect to Santander, finding that the bank's contacts with New York were insufficient to establish either general or specific personal jurisdiction over it.
On appeal, Santander, on behalf of SIS, argued that the presumption against extraterritoriality bars the extension of Section 1782 discovery to evidence located outside of the U.S. The presumption states that absent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application. The PIMCO Investors countered that the presumption against extraterritoriality has no application to a "strictly jurisdictional" statute like Section 1782.
The Second Circuit agreed with the PIMCO Investors, holding that the location of evidence outside of the U.S. does not establish a per se bar to discovery under Section 1782. The Second Circuit reasoned that because Section 1782 authorizes discovery in accordance with the Federal Rules of Civil Procedure, which permits extraterritorial discovery so long as the evidence sought is within the subpoenaed party's possession, custody, or control, Section 1782 likewise permits extraterritorial discovery.
In deciding that there is no per se bar to Section 1782's application abroad, the Second Circuit joins the Eleventh Circuit's decision in Sergeeva v. Tripleton Int'l Ltd., 834 F.3d 1194, 1200 (11th Cir. 2016) in concluding that Section 1782 permits extraterritorial discovery. But, the Second Circuit decision did leave room for each individual court to consider the location of the evidence in deciding whether to authorize Section 1782 discovery - for example, in assessing whether the request places an undue burden on the target.
The Second Circuit's ruling on Section 1782's extraterritorial application could have a significant impact on banks and other multinational institutions that are subject to general or specific personal jurisdiction in New York and possess documents abroad. Previously, some district courts, including in the Second Circuit and at least one circuit court, the Seventh Circuit in Kestrel v. Joy Global, 362 F.3d 401 (7th Cir. 2004), had held that Section 1782 could not be used to obtain evidence abroad. But with the Second Circuit's ruling, targets of Section 1782 discovery that are "found" in New York can now be ordered to produce evidence that is created and stored overseas so long as the proposed request is not unduly intrusive or overly burdensome.
The decision is not all bad news for multinational institutions, however. In finding that Section 1782 incorporates personal jurisdiction limitations consistent with due process, the Second Circuit made clear that it is not enough for a petitioner to show that the target maintains offices and conducts business in the district to be subject to broad, Section 1782 discovery in support of litigation overseas. There must be some nexus between the target's contacts with the forum and the actual discovery sought. This should give non-U.S. banks and financial institutions some comfort that having branches and other banking functions in New York will not, in and of itself, be enough to expose them to Section 1782 discovery.