On October 7, 2019, in an issue of first impression, the U.S. Court of Appeals for the Second Circuit held that 28 U.S.C. § 1782 can be used to obtain discovery for documents located outside the United States for use in foreign proceedings. The court also concluded that § 1782's reach extends to parties not headquartered or incorporated in the district where the petition is filed, so long as the requested evidence arises from conduct in the district. This ruling has far reaching consequences for entities involved in disputes abroad. Not least, it could indicate a trend of Circuits favoring the application of § 1782, extraterritorially.
In re: Application of Antonio Del Valle Ruiz relates to the 2017 acquisition by Banco Santander S.A. (Santander) of Banco Popular Español, S.A. (BPE) after a government-forced sale. In 2017, Spain's national banking supervisory authority initiated several banks to bid on the failing BPE. Only Santander submitted a bid, and purchased the bank for one Euro (€1).
Petitioners, made up of two investment and asset management firms and a group of 55 Mexican investors, suffered significant financial losses as a result of the sale. They subsequently initiated or sought to intervene in various foreign proceedings contesting the legality of the acquisition, including a challenge before the Court of Justice of the European Union and an international arbitration proceeding against Spain.
To assist with those proceedings, in 2018, Petitioners filed a § 1782 application seeking discovery from Santander and its New York-based affiliate, Santander Investment Securities, Inc. (SIS) concerning the financial status of BPE. Santander argued, inter alia, that it was not "found" in the Southern District within the meaning of § 1782, that § 1782 does not apply to documents or witnesses located overseas, that and discovery was otherwise unwarranted.
U.S. District Judge Edgardo Ramos found in October 2018 that he did not have jurisdiction over Santander, but did have authority over SIS, which maintains its principal place of business in New York. On appeal, petitioners challenged the court's jurisdiction over Santander. Santander challenged the lower court's decision that § 1782 extends to documents outside the U.S.
Section 1782 permits parties to apply to U.S. federal district courts for the production of documents and testimony for use in foreign or international tribunals, provided three statutory requirements are met:
- the person from whom discovery is sought "resides or is found" in the U.S. federal district where the application is made;
- the discovery is "for use in a proceeding in a foreign or international tribunal"; and
- the petitioner is an "interested person" in the foreign proceeding.
Notably, § 1782 does not require that the evidence being sought must be discoverable under the law of the local tribunal or that the discovery would otherwise be discoverable in U.S. domestic litigation analogous to the non-U.S. proceeding. If the statutory requirements are met, a court may weigh discretionary factors in deciding whether to allow discovery. The court is not required to grant a § 1782 application simply because it has the authority to do so.
The Second Circuit's Decision
On appeal, the Second Circuit held that (1) there is no per se bar to the extraterritorial application of § 1782 and a district court may exercise its discretion as to whether to allow such discovery, and (2) § 1782's "resides or is found" language extends to the limits of personal jurisdiction consistent with due process under the U.S. Constitution which, in the context of a liability action, depends on in-state activity that gave rise to the episode-in suit. Finding that § 1782 can be applied extraterritorially, the court held that the presumption against extraterritoriality does not apply to § 1782 because it is "simply a discovery mechanism [that] does not subject a person to liability." The court noted that even if the presumption were to apply, Congress expressly permitted courts to allow discovery in accordance with the Federal Rules of Civil Procedure which allows for extraterritorial discovery. This is significant because, as the Second Circuit recognised, most courts that have concluded that § 1782 does not apply extraterritorially rely on dicta from the Second Circuit. The court's ruling now pours some cold water on the ability of future decisions to rely on the Second Circuit with the same objective. The court also held that § 1782 allows discovery against a respondent that "resides or is found" in a district court's jurisdiction, even if it is not subject to liability in the underlying proceedings. To establish specific jurisdiction over a § 1782 respondent, the petitioner must show that the discovery it seeks "proximately resulted from the respondent’s forum contacts." In Valle Ruiz, the court concluded that Santander's forum contacts were insufficient for it to exercise jurisdiction. Specifically, Santander's in-forum contacts were restricted to a separate and prior transaction from the transaction in respect of which the claim arose, and in relation to the bulk of the discovery sought.
Entities today maintain documents and electronically stored information in a variety of locations all over the world. Because § 1782 can now be used to obtain discovery that would otherwise be unobtainable under the governing law of the foreign tribunal, the Valle Ruiz decision has significant implications for entities seeking to obtain–or resist–discovery abroad.
This case underscores the importance ensuring that a foreign parent's documents remain outside the possession, custody, and control of a U.S. subsidiary, or ensuring that they are available to a U.S. subsidiary only subject to privilege. Entities should further carefully weigh the implications of complying with subpoenas and other discovery requests from U.S. regulatory agencies and other third parties. Non-parties that produce information subject to a § 1782 petition should consider the risk that such documents may be exposed in a subsequent or ancillary proceeding.