United States: New York Court Bucks Trend And Allows Discovery Of Documents Abroad Under 28 U.S.C. § 1782

Last Updated: June 20 2018
Article by John W. Moscow and Nicholas M. Rose

A significant new ruling out of the Southern District of New York has ignited the debate over the extraterritorial scope of 28 U.S.C. § 1782. District Judge Jesse Furman on Monday ruled that the statute, which authorizes U.S. discovery "for use in a foreign proceeding or international tribunal," permits discovery of documents and data located abroad – breaking with his colleagues in the Southern District of New York and, because the ruling was appealed two days after it was issued, teeing up the issue for the Second Circuit. Businesses housing information abroad and operating in New York should take note, as they now must brace for the possibility that their foreign documents and data may be ordered produced in New York for use in civil and criminal proceedings around the globe.

The case before Judge Furman, In re Application of Accent Delight International Ltd., 16-MC-125, is part of a "larger international saga" over the creation of a world-class art collection, including works by Picasso and van Gogh. Companies owned by family trusts of Dmitry Rybolovlev, a Russian national residing in Monaco, paid approximately $2 billion from 2003 through 2014 for the works. (Rybolovlev, a headline-grabbing Russian oligarch, has been in the papers for, among other things, a $4.5 billion divorce, an $88 million New York apartment purchased by his college daughter, and a $95 million real estate purchase from Donald Trump.) The acquisitions were made by an intermediary, Yves Bouvier, who brokered the transactions by purchasing the works through one of his own companies and then reselling the works – plus a commission – to Rybolovlev's companies. The structure not only gave Rybolovlev's companies privacy, but also, allegedly, allowed Bouvier to fraudulently inflate the original purchase price when reselling the works. Believing that they had been thus defrauded to the tune of $1 billion in "secret margins," Rybolovlev's companies brought or joined a variety of civil and criminal proceedings against Bouvier in Monaco, France and Singapore.

Sotheby's was involved in some of the deals at issue in the foreign proceedings, so Rybolovlev's companies sought discovery from Sotheby's in the Southern District of New York under § 1782. That statute permits parties to a foreign proceeding to seek discovery from anyone who, like Sotheby's, "resides or is found" in the district of the issuing court. Sotheby's opposed the petition, claiming that much of the discovery was located at Sotheby's affiliates abroad, placing the documents "beyond the reach of § 1782." Specifically, Sotheby's argued to Judge Furman that § 1782 only permits discovery of documents located within the United States, and thus that the court had no authority under the statute to order the production of documents and data located abroad.

Sotheby's argument has been a winning one over the years in the Southern District of New York. Most of the Southern District judges who have confronted the issue have rejected extraterritorial application of § 1782. And although the Second Circuit has not ruled on the issue, it has observed in passing that "there is reason to think that Congress intended [the statute] to reach only evidence located within the United States." In re Application of Sarrio, S.A., 119 F.3d 143, 147 (2d Cir. 1997). The Eleventh Circuit in 2016 took the opposite view, squarely holding that the statute allows discovery of documents located abroad. Sergeeva v. Tripleton Int'l Ltd., 834 F.3d 1194, 1199-1200 (11th Cir. 2016). The Eleventh Circuit is currently the only circuit to have reached a holding either way on the issue.

In what promises to be an important ruling going forward, Judge Furman in his June 11 opinion sided with the Eleventh Circuit and held that "Section 1782 imposes no geographical limit on the production of documents." In re Application of Accent Delight Int'l, Ltd., No. 16-MC-125, 2018 WL 2849724, at *4 (S.D.N.Y. June 11, 2018). Judge Furman reasoned that § 1782 allows discovery "in accordance with the Federal Rules of Civil Procedure," which permits discovery of documents in a party's "possession, custody, or control." Based in part on this holding, Judge Furman granted the § 1782 application over Sotheby's objections.

Judge Furman's ruling is important because it lends analytical rigor to the Eleventh Circuit's position, while highlighting the risk that an entity doing business in New York will be ordered to gather documents from foreign affiliates for production in New York under § 1782, notwithstanding the contrary position of Judge Furman's S.D.N.Y. colleagues. More importantly, Sotheby's immediate appeal of the ruling may give the Second Circuit an opportunity to resolve the split among S.D.N.Y. judges on the issue and squarely define the extraterritorial scope of § 1782. As businesses increasingly move their data to the cloud – making it accessible from anywhere – courts may be willing to accept that a person subject to their jurisdiction cannot shield data from discovery merely by housing it abroad. Any ruling on the issue by the Second Circuit will have major implications, given the increasingly transnational nature of New York-centered business and business disputes.

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