A recent decision from the U.S. District Court for the Southern District of New York in In re Application of Gorsoan Limited for an Order Pursuant to 28 U.S.C. section 1782 to Conduct Discovery for Use in a Foreign Proceeding, No. 18-MC-431 (RA), (S.D.N.Y. Jan. 24, 2020) held that Section 1782 does not categorically bar asset discovery. The decision represents a departure from a line of cases that had interpreted the Second Circuit’s decision in Euromepa, S.A. v. R. Esmerian, Inc., 154 F.3d 24 (2d. Cir. 1998) as standing for the proposition that asset discovery does not satisfy Section 1782’s “for use” requirement because neither pre judgment attachment nor post-judgment enforcement proceedings are adjudicative in nature.
In In re Gorsoan, petitioner Gorsoan Limited (Gorsoan) had filed a civil suit in Cyprus in 2012 against thirty defendants, including Janna Bullock (Bullock), alleging that they engaged in fraud between 2005 and 2008 that resulted in approximately $25 million in damages. As part of that litigation, Gorsoan obtained an order from the Cyprus court in August 2012 freezing assets exceeding the value of € 10,000 anywhere in the world belonging to certain defendants, including Bullock, and requiring those defendants to disclose those assets.
In November 2013, Gorsoan filed an ex parte application in the Southern District of New York for an order pursuant to Section 1782 to obtain discovery from Bullock for use in Cyprus. After extensive litigation, the application was granted and that decision was affirmed by the Second Circuit. However, Bullock did not produce much, if any, discovery.
In September 2018, Gorsoan filed a second ex parte application for an order pursuant to Section 1782 to obtain discovery from Bullock’s mother, her two daughters, and one of her associates (Respondents). After an order was issued granting the application and the subpoenas were served, Gorsoan moved to compel compliance while Respondents and intervenor Bullock moved to vacate the order and quash the subpoenas.
Respondents and intervenor Bullock argued that the court lacked jurisdiction to permit the discovery because Gorsoan failed to establish the second statutory requirement under Section 1782 – that is, that the discovery is “for use” in a proceeding before a foreign tribunal. More specifically, they argued that Gorsoan was seeking “asset discovery” to determine Bullock’s compliance with the Asset Freeze and Disclosure Order and that Section 1782 does not permit such discovery because it would not aid a foreign trier of fact in an adjudicative proceeding. Significantly, Gorsoan conceded at oral argument that the discovery it was seeking for the period from August 2012 to the present was “unlikely . . . [to] bear on the fraud itself” that allegedly occurred between 2005 and 2008 and was at issue in Cyprus. In support of the proposition that Section 1782 does not permit asset discovery, Respondents and intervenor Bullock cited the Second Circuit’s decision in Euromepa, as well as several subsequent cases from the Southern District of New York, which denied Section 1782 applications seeking asset discovery.
Judge Abrams's Decision
In her decision, Judge Ronnie Abrams acknowledged that the Second Circuit in Euromepa had denied an application for discovery pursuant to Section 1782 to assist with a French bankruptcy proceeding on the grounds that the “for use” requirement was not met because the foreign proceeding was “not an adjudicative proceeding within the meaning of the statute” insofar as “[t]he merits of the dispute between [the parties] ha[d] already been adjudicated” and “the already extant judgment [wa]s merely being enforced.” Judge Abrams also acknowledged that several courts in the Southern District of New York had interpreted Euromepa to stand for the proposition that “neither pre-judgment attachment nor post-judgment enforcement proceedings are ‘adjudicative’ in nature.” See Jiangsu Steamship Co., Ltd. v. Success Superior Ltd., 14 Civ. 9997, 2015 WL 3439220 (S.D.N.Y. Jan. 30, 2015) (Judge McMahon) (denying an application for Section 1782 discover to “locate . . . entities’ assets” in New York banks to assist with obtaining a pre judgment attachment); see also In re MT Baltic Soul, No. 15 mc-319 (LTS), 2015 WL 5824505 (S.D.N.Y. Oct. 6, 2015) (Judge Swain) (denying an application for Section 1782 discovery that “would only be in relation to a contemplated post judgment action, which Euromepa holds is not a ‘foreign proceeding’ within the meaning of section 1782”); In re Asia Mar. Pac. Ltd., 253 F. Supp. 3d 701, 706-07 (S.D.N.Y. 2015) (Judge Caproni) (denying an application for Section 1782 discovery to assist with obtaining a pre-judgment attachment).
Notwithstanding the foregoing, Judge Abrams ruled that Respondents and intervenor Bullock misread and overextended the reasoning of Euromepa and the cases that followed, and held that “[n]one of the decisions established a broad rule that asset discovery can never be adjudicative and is thus always impermissible under [Section] 1782.” Instead, Judge Abrams found persuasive decisions by a magistrate judge in Massachusetts and a district court judge in Tennessee that “sought to clarify Euromepa’s holding.” See In re Stati No. 15-mc-91509, 2018 WL 474999 (D. Mass. 2018) (“[T]he Euromepa court did not universally bar discovery in all bankruptcy proceedings, particularly where issues are being adjudicated.”); JSC MCC EuroChem v. Chauhan, 17-mc-5, 2018 WL 3872197, at *12 (M.D. Tenn. Aug. 15, 2018) (stating that “Euromepa had not held ‘that all post-judgment proceedings are not adjudicative’ and that Jiangsu overextended Euromepa in holding that all pre-judgment attachment proceedings are non-adjudicative”). Relying on these decisions, Judge Abrams concluded that Euromepa denied the Section 1782 application based on a particular finding of fact that the discovery could not provide some advantage or serve some use in a proceeding, and, therefore, the decision “does not lend itself to a broad rule against all asset discovery.”
Ultimately, Judge Abrams determined that Gorsoan had established that the “for use” requirement would be met in this particular case. More specifically, although Gorsoan conceded that the discovery relating to records from August 2012 to the present was unlikely to bear on the alleged fraud between 2005 and 2008, it could nonetheless affect the outcome in Cyprus, albeit in an attenuated way, because it could be used in an anticipated contempt proceeding in Cyprus to establish that Bullock did not comply with the Asset Freeze and Disclosure Order, which, in turn, could result in an order limiting or precluding Bullock from presenting a defense in the fraud proceeding. Judge Abrams concluded that this was sufficient for Gorsoan to establish that it would or could garner “some advantage” in the Cyprus court by obtaining the discovery it was requesting.
Until the Second Circuit has an opportunity to weigh in and clarify the scope of its holding in Euromepa, the decision could vastly expand the use of Section 1782, which has already become a potent weapon for foreign litigants seeking discovery from companies and individuals in the U.S. in aid of their claims in other countries and international tribunals.