The Extraterritorial Reach of § 1782 Discovery

With the continued expansion of international trade and the increase in cross-border transactions comes an increase in complex multi-jurisdictional disputes. And when foreign litigants or related parties have engaged in business dealings in the U.S., it is often necessary for foreign litigants to seek the assistance of courts in the U.S., with one of the key courses of action being an application for discovery under 28 U.S.C. § 1782.[1]

28 U.S.C. § 1782

Section 1782 provides foreign litigants with the ability to petition a U.S. District Court for an order compelling discovery of evidence for specific use in a proceeding in a foreign or international tribunal, and has been a valuable tool for foreign litigants seeking disclosure of evidence such as banking documents or corporate records from U.S. individuals or companies.

The threshold requirements for obtaining § 1782 discovery are the following:

1. The Individual (or company) that discovery is being sought from “resides or is found” in the district of the court where the relief is being sought;
2. The evidence being sought is for use in a proceeding in a foreign or international tribunal; and
3. The relief may be granted pursuant to letters rogatory, a request by a foreign or international tribunal, or upon application of any interested person.

In re del Valle Ruiz

On Oct. 7, 2019, the U.S. Court of Appeals for the Second Circuit provided much-needed guidance in the case of In re del Valle Ruiz[2] with respect to the unsettled issue of the extraterritorial application of § 1782, expanding the scope of § 1782 by allowing the discovery of evidence located outside of the U.S.

While the Second Circuit’s decision is notable for providing further guidance on the issue of personal jurisdiction, this article will focus on the second issue the Second Circuit was asked to decide, which involved the extraterritorial application of § 1782.

Background

On June 6, 2017, Spanish bank Banco Popular Español S.A. (BPE) was sold in a Spanish government-forced sale to the Spanish headquartered bank, Banco Santander S.A. (Santander), for the sum of one Euro following a brief bidding procedure that lasted less than 24 hours and only produced one bid.[3]

The sale resulted in various international civil, criminal and arbitral proceedings. A group of 55 Mexican investors known as the “del Valle Ruiz petitioners,” as well as two investment and asset-management firms known as the “PIMCO petitioners,” filed separate § 1782 applications in the Southern District of New York seeking discovery for use in the foreign proceedings from Santander and various related entities including Santander Holdings U.S.A. Inc. (SHUSA), Santander Bank N.A. (SBNA) and Santander Investment Securities Inc. (SIS).[4]

The district court granted the PIMCO petitioners’ application in part by ordering the discovery from SIS, which included evidence located outside of the U.S., but denied the applications for discovery against Santander, SHUSA and SBNA on the basis that the court could not exercise personal jurisdiction as these entities neither “reside” nor are they “found” in the district.

Second Circuit Ruling

The Second Circuit was asked to resolve two important issues:

1. Whether Santander’s contacts with the Southern District of New York brought it within the scope “of § 1782’s requirement that a person or entity ‘resides or is found’ in the district in which discovery is sought”; and
2. Whether § 1782 can be used as a tool to obtain discovery of documents located outside of the U.S.

On deciding the first issue, the Second Circuit held that the wording “resides or is found” extends to the limits of personal jurisdiction consistent with due process and that due process in the circumstances requires the court to examine a party’s contacts with the forum in connection with the type of discovery sought. The Second Circuit found there was an insufficient connection between Santander’s contacts with the Southern District of New York and the type of discovery being sought, and decided that the district court was correct in holding that it lacked personal jurisdiction over Santander.

As regards the issue of the extraterritorial application of § 1782, the Second Circuit rejected SIS’s argument that the discovery of foreign-located evidence could not be ordered under § 1782 based on the presumption against extraterritoriality.[5]

Having rejected this argument, the Second Circuit moved on to consider the Eleventh Circuit’s reasoning in Sergeeva v Tripleton Int’l Ltd.[6] That:

1. the text of § 1782 authorizes discovery pursuant to the Federal Rules of Civil Procedure;
2. the Federal Rules of Civil Procedure authorize extraterritorial discovery;[7] and
3. consequently, “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 discovery under § 1782.”

Accepting the Eleventh Circuit’s persuasive reasoning, the Second Circuit held that a district court is not barred from ordering requested discovery of foreign-located evidence pursuant to § 1782.

Notwithstanding this finding, the Second Circuit held that the location of documents and other evidence is relevant to the district court’s determination as to whether it should exercise its discretion to authorize extraterritorial discovery.