In re Application of Postalis for an Order to Take Discovery Pursuant to 28 U.S.C. § 1782, No. 18-mc-497 (JGK) (S.D.N.Y. Dec. 20, 2018) [click for opinion]

Plaintiff brought an action in the Southern District of New York, seeking an order under 28 U.S.C. § 1782 authorizing it to take discovery from the Bank of New York Mellon ("BNY Mellon"). At the time, Plaintiff had six active suits pending against BNY Mellon's direct and indirect subsidiaries in Brazil for negligent performance of duties and failure to perform duties with respect to the management and administration of nine funds in which Plaintiff had invested.

Plaintiff broadly sought discovery from BNY Mellon regarding the nine funds, including information regarding the administration and management of the funds, relevant investment decisions, and any investigation conducted by BNY Mellon of the subsidiaries' administration and management of the investment funds. The sought-after document discovery spanned from January 1, 2005 through February 4, 2016, and Plaintiff also included a request for a Rule 30(b)(6) deposition covering the same breadth of information.

The court ultimately denied Plaintiff's application for discovery, reasoning that Plaintiff had failed to establish that the discovery was for use in a foreign proceeding, as required, and further failed to overcome several discretionary factors that counseled against granting Section 1782 discovery here.

As the district court explained, in order to obtain discovery under Section 1782, an applicant must show the following: (1) the person from whom discovery is sought resides (or can be found) in the district of the district court to which the application is made; (2) the discovery is "for use" in a proceeding before a foreign tribunal; and (3) the application is made by a foreign or international tribunal or "any interested person." Here, neither the first nor third factor were in dispute.

However, the court concluded that, although Plaintiff claimed that the discovery sought would assist Plaintiff in proving that the BNY Mellon subsidiaries acted negligently and breached fiduciary duties in their administration and management of Plaintiff's investments, Plaintiff had failed to meet the second requirement because it had twice made public statements in Brazil in which it admitted that the purpose of the application was to obtain pre-litigation discovery that it could potentially use to plead a new action against BNY Mellon.

The court reasoned that, even though the "for use" element only requires a party to show that the requested discovery would be "employed with some advantage or serve some use in the [existing foreign] proceeding," Plaintiff's conclusory attempts to argue this were not credible in light of these contradictory public statements and the overbroad scope of Plaintiff's discovery requests. According to the district court, the discovery sought was not targeted towards the conduct or knowledge of the BNY Mellon subsidiaries and, instead, focused on the conduct and knowledge related to the investment funds of BNY Mellon, a non-party to any of the Brazilian proceedings.

The court added that courts are free to deny Section 1782 applications in toto if they determine that such applications were made in bad faith, for the purpose of harassment, or unreasonably seek cumulative or irrelevant materials. The court observed that seeking discovery under Section 1782 for an improper purpose—i.e., for pre-litigation discovery otherwise not permitted under the Federal Rules of Civil Procedure (as was the case here)—is bad faith just as a harassing application is in bad faith.

Plaintiff contended that if the court was concerned that the application was a fishing expedition, then the appropriate remedy was to enter a protective order limiting the use of the resulting evidence to the pending proceedings in Brazil. The court disagreed, reasoning that a protective order is not an effective remedy for an overbroad discovery request that is searching for whether to bring a lawsuit in the United States since the results of such discovery could still shape the decision to bring a lawsuit and thereafter influence the types of documents sought in the subsequent action. Because Plaintiff had failed to establish the second requirement of the Section 1782 analysis, the court was obliged to deny Plaintiff's claim for this reason alone.

Even so, the district court observed that, where the aforementioned requirements are met—which, again, they were not here—district courts still have broad discretion to decide whether to grant or deny a discovery request by considering the following factors: (1) whether the discovery target is a party to the foreign proceeding, (2) whether the foreign tribunal will be receptive to assistance from a United States federal court, (3) whether the discovery request "conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country of the United States, and (4) whether the discovery request is unduly intrusive or burdensome.

The court concluded that, even where it is undisputed that Brazilian courts are receptive to this kind of assistance from U.S. courts, the remaining factors all counseled against granting any version of Plaintiff's discovery request. With regards to the first of these factors, the court explained that where, as here, a subsidiary is party to a foreign proceeding and the parent is the discovery target, this first factor weighs against granting the discovery application because the evidence sought is theoretically within the foreign tribunal's jurisdictional reach. As to the third factor, the court reasoned that, because Plaintiff admitted that it was bringing this application for the purpose of obtaining pre-litigation discovery and because the American legal system does not permit pre-action discovery except in very limited circumstances under Rule 27 of the Federal Rules of Civil Procedure (all of which are incorporated into Section 1782 by reference), it was clear that plaintiff was seeking to circumvent the laws and policies of the United States embodied in the Federal Rules of Civil Procedure. This further weighed against granting Plaintiff's application. Finally, with regards to the final factor, the court applied the familiar standards of Rule 26 of the Federal Rules of Civil Procedure and concluded that Plaintiff had failed to show that the discovery sought would be relevant or proportional to the needs of its claims or defenses in the pending Brazilian proceedings.

For the foregoing reasons, the court denied Plaintiff's application for an order pursuant to Section 1782.