28 U.S.C. § 1782 is a statute that enables litigants to obtain discovery in the United States for use in foreign proceedings. An open issue courts have been grappling with under the statute is whether it permits a U.S. court to order the production of documents located abroad – that is, when a person or entity "resides or is found" within the district but the documents are sought from outside of the district or, more likely, overseas. Some courts have allowed extraterritorial production, but others have limited production to documents in the United States.
The Second Circuit Court of Appeals, in In re Del Valle Ruiz, 2019 WL 4924395 (2nd Cir. Oct. 7, 2019), resolved a Southern District of New York (where numerous § 1782 applications are filed) split on this issue by permitting extraterritorial discovery. Given the number of entities that are "found" in New York and that possess documents abroad, the Second Circuit's ruling has far-ranging consequences. But potentially broader production comes with a catch: The Second Circuit clarified the personal jurisdiction requirements that must be satisfied to obtain discovery under § 1782, ensuring that foreign entities with limited presence in the United States will not be subjected to broad-ranging discovery under the statute.
The In re Del Valle Ruiz Decision
The Second Circuit's decision arose from two § 1782 applications filed by applicants in the Southern District of New York concerning Banco Popular Español; one sought discovery from Banco Santander and the other sought discovery from its New York-based affiliate, Santander Investment Securities Inc. Banco Popular Español was acquired by Banco Santander after a government-forced sale. Banco Santander is a Spanish company with its principal place of business in Madrid, and Santander Investment Securities is a Delaware corporation with its principal place of business in New York.
Judge Edgardo Ramos of the United States District Court for the Southern District of New York denied the application as to Banco Santander for lack of personal jurisdiction, given that Santander was not found in the Southern District of New York. However, the court granted discovery as to Santander Investment Securities, even though the relevant documents were located abroad. On appeal, the Second Circuit analyzed issues of first impression and affirmed, finding that § 1782 applied extraterritorially and clarifying the personal jurisdiction requirements that § 1782 applicants must satisfy.
The Extraterritorial Reach of § 1782
The Second Circuit rejected Banco Santander's argument that § 1782 did not allow for extraterritorial discovery and affirmed that there is no "per se" bar to its application abroad, holding that a district court may exercise its discretion to order production of documents located abroad.
In so holding, the Second Circuit joined the Eleventh Circuit, which had previously allowed extraterritorial discovery, see Sergeeva v. Tripleton Int'l Ltd., 834 F.3d 1194, 1199-1200 (11th Cir. 2016), while the Seventh Circuit had denied an application requesting documents held overseas by a U.S. company's foreign subsidiary, because the documents were both outside the U.S. and outside the parent company's files, see Kestrel v. Joy Global, 362 F.3d 401 (7th Cir. 2004). District Courts in the Second Circuit had also reached differing results on this issue. Compare In re Gemeinschaftspraxis Dr. Med Schottdorf, 2006 WL 3844464 (S.D.N.Y. Dec. 29, 2006) (allowing extraterritorial discovery), with In re Kreke Immobilien KG, 2013 WL 5966916 (S.D.N.Y Nov. 8, 2013) (denying extraterritorial discovery). BakerHostetler previously highlighted the issue here.
'Found' Within the Meaning of § 1782
But the Second Circuit's grant of extraterritorial discovery under § 1782 has some protections too. Foreign entities that are found in New York are not exposing their entire company to broad U.S. discovery. Instead, the word found in § 1782 incorporates personal jurisdiction limitations consistent with due process. In other words, there must be some connection between the subpoenaed entity's contact with the forum and the actual discovery sought.
To establish specific jurisdiction for purposes of a § 1782 application, the Second Circuit held that the sought-after materials should proximately result from the subpoenaed entity's forum contacts – i.e., the applicant is seeking discovery related to the entity's contacts in the United States. However, if the subpoenaed entity has more specific and extensive contact within the forum, the § 1782 applicant need only show that the evidence would not be available but for the forum contacts. Effectively, this is a sliding scale that depends on the scope and extent of the forum entity's contacts with the United States.
The In re Del Valle Ruiz decision continues the Second Circuit's attempts to limit the role of New York City (and, relatedly, the wide-ranging U.S. discovery system) as the forum for all international disputes. For example, the Frontera Resources Azerbaijan v. State Oil Company, 582 F.3d 393 (2nd Cir. 2009), decision required some jurisdictional hook before a foreign arbitral award could be confirmed in the United States under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
With extraterritorial discovery under § 1782 now authorized in the Second Circuit, expect an uptick on personal jurisdiction disputes to fight against these applications.
Section 1782 applicants have two paths for dealing with this decision. If the subpoenaed documents are sought from U.S. entities, the In re Del Valle Ruiz decision becomes a sword: Applicants can now seek documents abroad. U.S. banks that do foreign business and major corporations with offices abroad are potential targets for worldwide discovery. The decision is particularly impactful given the breadth of electronic information that may be stored overseas that is now accessible through the U.S. discovery system.
Meanwhile, the decision gives foreign corporations a defense if the discovery sought is overbroad in comparison to the corporation's U.S.-based contacts. Applicants must be targeted in the discovery they seek and tailor their requests to the target company's contacts in the United States. Careful planning before filing a § 1782 application against a foreign entity should minimize these disputes.
As for other circuits that have yet to address the issue, the Second Circuit's opinion will be highly persuasive. Unsurprisingly, courts in the Second Circuit handle more § 1782 applications than any circuit, so the Second Circuit has more precedent dealing with these issues. But the In re Del Valle Ruiz decision is well reasoned too, because it conforms to the language of the statute and, simultaneously, provides important limitations preventing abuse of extraterritorial discovery. Save for the Seventh Circuit, this issue is likely settled – if you are located in the U.S., expect your foreign documents to be subject to discovery.