A federal statute, 28 U.S.C. § 1782, provides a mechanism for litigants in foreign proceedings to conduct discovery here in the United States. Whether you represent a party petitioning for a section 1782 subpoena, the subpoena respondent, or the foreign target of the U.S. discovery, there are several facets of the statute to consider when advising your client and many recent court decisions to evaluate when deciding how to proceed.
Courts deciding whether to issue a section 1782 subpoena must first determine whether the petitioner has met the three statutory requirements: (1) the person from whom discovery is sought must “reside” or be “found” in the district, (2) the application must be made by a foreign or international tribunal or “any interested person;” and (3) the discovery must be “for use in a proceeding in a foreign or international tribunal.”
The first two requirements rarely present an issue. A party to a foreign proceeding is an “interested person,” and section 1782 petitions routinely are filed where the subpoenaed entity “resides” or is “found.” For example, many foreign litigants file section 1782 petitions in the Southern District of New York seeking records of banks based in New York or in the Northern District of California seeking records from technology companies such as Google or Facebook.
The third, “for use in” requirement has posed more questions for litigants. Must the foreign proceeding have started? No, the foreign proceeding need not be pending, so long as it is within reasonable contemplation and not merely speculative. Must the discovery be admissible or even discoverable in the foreign proceeding? No. The U.S. court will not delve into questions of foreign law regarding admissibility and discoverability in the foreign proceeding. If, however, the materials sought are patently irrelevant to the foreign proceeding, the U.S. court would deny the petition. In a recent case from the Second Circuit, Gorsoan Ltd. v. Sundlun, the court of appeals held that a section 1782 petition should be denied where the petitioner sought discovery regarding the target’s current assets, which were not relevant to the foreign litigation about alleged fraud that occurred a decade ago. The petitioner argued the discovery was relevant to a possible future contempt proceeding, but the court of appeals viewed that proceeding as too speculative. Can the discovery be in aid of a private international commercial arbitration? Here, the circuits are split. The Second Circuit held last year that section 1782 does not apply to such proceedings, but in the past few years, the Fourth and Sixth Circuits have reached the opposite conclusion, holding that discovery may be taken in aid of private arbitration. The Supreme Court will resolve the circuit split in Servotronics Inc. v. Rolls-Royce PLC, No. 20-794, which is scheduled for argument in October 2021.
If the statutory elements are met, the court will then exercise its discretion whether to grant the petition, applying the four factors identified by the Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). The first factor is whether “the person from whom discovery is sought is a participant in the foreign proceeding.” If so, there is no evident need for the section 1782 discovery. The second factor is “the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance.” This factor generally weighs in favor of discovery unless there is some clear indication the foreign tribunal would reject evidence obtained via section 1782. For example, in one case, the foreign tribunal filed an amicus brief stating it had no need or use for the section 1782 discovery. The third factor is whether the section 1782 discovery request “conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States.” Here, recognizing that U.S.-style discovery is broader in scope than typical of most jurisdictions, the petitioner need not show that the foreign jurisdiction expressly provides a mechanism for obtaining the information sought in the section 1782 discovery. The U.S. court will, however, consider evidence that the discovery would violate established laws of the foreign jurisdiction or the procedures of the foreign tribunal. The fourth factor is whether the request is “unduly intrusive or burdensome.”
One question litigants have grappled with is whether section 1782 allows for the discovery of documents located outside the United States. In 2019, the Second Circuit held that “a district court is not categorically barred from allowing discovery under § 1782 of evidence located abroad.” In re del Valle Ruiz, 939 F.3d 520, 533 (2d Cir. 2019). Even though section 1782 has extraterritorial reach, at least in the Second Circuit, whether to grant extraterritorial discovery is at the discretion of the district court, applying the Intel factors. To date, there are few decisions allowing extraterritorial discovery under section 1782. In a January 2021 decision, In re Vale S.A., the Southern District of New York preliminarily allowed discovery of information stored on the respondent’s server located in Germany, despite arguments that compliance with European Union privacy laws created an undue burden. The court directed the parties to work to keep costs and the burden to a minimum and report back to the court.
There are several considerations that subpoena recipients should bear in mind when responding to section 1782 discovery. Most section 1782 subpoena recipients will be third-party record holders and not the parties to the foreign proceeding, and their objections to the subpoena will focus on the “unduly intrusive or burdensome” factor. In deciding whether the discovery sought is unduly burdensome, the U.S. court will apply the Federal Rule of Civil Procedure 26 standard and consider whether the discovery is “proportional to the needs of the case” and “whether the burden or expense of the proposed discovery outweighs its likely benefit.” Although courts routinely grant section 1782 petitions, they have been receptive to arguments that the discovery request is overly broad and burdensome. In a January 2021 case from the Southern District of New York, Ex parte in re Abdalla, the court denied the application for issuance of subpoenas directed to the Clearing House Payments Company (CHIPS) and the Federal Reserve Bank of New York for records of transactions for 93 persons or entities over a 23-year period. Although this court declined to “blue-pencil” the requests to narrowly tailor them, some courts will grant such petitions, subject to narrowing. For example, in a February 2021 case from the Northern District of California, In re Ex Parte Application of Medical Corp. Kouyuukai, the court granted a petition seeking Google records, subject to a requirement that the petitioner more specifically define the accounts for which records were sought and limit the date range to an abbreviated period of months.
Courts are receptive to burden/intrusiveness objections based on the privacy rights of the respondent’s customers or account holders. In a January 2021 case from the Northern District of California, In re Application of Adams, the petitioner sought information from Google on customers who purchased e-books and were potential putative class members. Because the court could not assess on the record before it whether the subpoena would require unduly intrusive discovery of Google user and account holder information, the court did not authorize service of the subpoena.
Most foreign discovery targets will have an opportunity to contest a section 1782 subpoena only after it has been issued. This is because petitions for section 1782 discovery routinely are granted ex parte. But once the subpoena is issued, the person or entity whose information is sought (the discovery target) has standing to challenge the subpoena on grounds that it was improperly issued (because the statutory elements were not met or the Intel factors do not weigh in favor of discovery). Also, because the statute provides that the discovery may not be “in violation of any legally applicable privilege,” the discovery target can object on privilege grounds. In determining which country’s privilege laws apply, last year the Second Circuit held in Mangouras v. Boggs that the “touch base” test is the proper choice-of-law test. Under this test, a court applies the law of the country that has the predominant or the most direct and compelling interest in whether communications should remain confidential, unless that foreign law is contrary to the public policy of the forum.
Alternatively, the discovery target could seek a protective order limiting the use of the information to the foreign proceeding at issue or protecting the confidentiality of sensitive information, such as bank account numbers and other personal identifying information.
Although Federal Rule of Civil Procedure 45 requires service of third-party subpoenas on parties to the underlying litigation, the court may, under section 1782, “prescribe otherwise.” Invoking this language in its February 2021 decision in In re Application of First Monolith Inc., the Southern District of New York found that “the chance that the potential defendants will tamper with evidence upon notice of the Petition justifies an exception to Rule 45’s notice requirement.”
Section 1782 generates a significant amount of case law in certain jurisdictions. There were over two dozen cases on section 1782 in the Southern District of New York in just the first few months of 2021. With the rise in cross-border discovery, global litigators initiating or responding to section 1782 discovery will want to monitor the case law in the jurisdiction issuing the section 1782 subpoena to ensure that the discovery satisfies the statute’s requirements and is tailored to satisfy the discretionary Intel factors.
