On Monday, October 7, 2019, the United States Court of Appeals for the Second Circuit (Second Circuit) examined three issues of first impression in the Circuit regarding 28 U.S.C. § 1782 (hereinafter § 1782) discovery.[ii] First, the Second Circuit ruled that § 1782 contains no “per se bar” to extraterritorial applications of § 1782, thus providing district courts discretion as to whether to allow extraterritorial discovery under § 1782. In doing so, the Second Circuit joined the Eleventh Circuit in finding that § 1782 authorizes extraterritorial discovery.[iii] Second, the Second Circuit clarified that § 1782’s requirement that the party against whom discovery is sought “resides or is found” in the relevant district is satisfied if the district court can exercise personal jurisdiction over that party consistent with federal due process. Third, the Second Circuit adopted a sliding-scale test for determining whether the discovery sought is sufficiently related to the § 1782 respondent’s contacts with the forum to satisfy due process.
Petitioners, a group of investment and asset management firms and investors, initiated two separate applications pursuant to § 1782 in the Southern District of New York (SDNY) seeking discovery from Santander and its New York-based affiliate, Santander Investment Securities (SIS), regarding the financial status of the Banco Popular Español, S.A. (BPE), which they proposed to use in connection with various foreign proceedings.
Santander acquired BPE for just one Euro after Spain’s national banking supervisory authority, the FROB, invited several banks, including Santander, to submit bids for the financially-distressed BPE within a twenty-four hour period.[iv] As the only bank to put forward a bid, Santander’s one-Euro bid was accepted on June 7, 2017.[v] Fifty-five Mexican investors (del Valle Ruiz Petitioners), as well as U.S. based investment and asset management firms (PIMCO Petitioners) suffered significant financial losses due to the forced sale of BPE, and sought to challenge the sale before the Court of Justice of the European Union. The del Valle Ruiz Petitioners also sought to challenge the sale in international arbitration proceedings initiated against Spain.
Both sets of petitioners sought to obtain evidence under § 1782, filing applications in the SDNY. The del Valle Ruiz Petitioners sought documents from Santander regarding BPE’s liquidity position, the forced sale process, and communications with regulators concerning BPE. The PIMCO Petitioners sought similar documents from both Santander and SIS.
The SDNY denied the applications seeking discovery from Santander on the ground that it lacked personal jurisdiction over the bank, which is headquartered and has its principal place of business in Spain. However, the court granted the PIMCO Petitioners’ application seeking discovery from SIS, Santander’s New York-based affiliate, even though the discovery in question included documents located outside of the United States. In partially granting the PIMCO Petitioners’ application, Judge Ramos rejected Santander’s argument that § 1782 does not permit extraterritorial discovery. Santander, the PIMCO Petitioners, and the del Valle Ruiz Petitioners all appealed, and the appeals were consolidated before the Second Circuit.
THE SECOND CIRCUIT’S DECISION
The Second Circuit affirmed, holding that: (1) § 1782’s requirement that a person or entity “resides or is found” within the district in which discovery is sought extends to the limits of personal jurisdiction consistent with due process; (2) the district court may exercise specific personal jurisdiction over a § 1782 respondent if the discovery sought “proximately resulted” from the respondent’s contacts with the forum, except that a “but for” causal relationship is sufficient if the respondent has significant forum contacts, and (3) § 1782 may be used to reach documents located outside of the United States.
On the first question, Santander had argued that § 1782’s “resides or is found” language would apply only in instances where the respondent was subject to general jurisdiction or where an individual was served, “and thus tagged,” while physically present in the district, otherwise known as “tag” jurisdiction.[vi] By contrast, Petitioners argued that § 1782’s “found” language is coterminous with the outer limits of personal jurisdiction consistent with due process, including general and specific personal jurisdiction. The Second Circuit proceeded to conduct a de novo determination of what “found” means in the context of § 1782, and noted that it “ha[d] repeatedly recognized Congress’s intent that § 1782 be ‘interpreted broadly,’” particularly in light of a district court’s broad discretion in “deciding whether, and to what manner, to order discovery in particular cases.”[vii] Given § 1782’s “increasingly “broad applicability,” the Second Circuit found that § 1782’s “resides or is found” language “extends to the limits of personal jurisdiction consistent with due process,” thus rejecting Santander’s suggestion that only general jurisdiction or “tag” jurisdiction are appropriate under § 1782.
Having established that § 1782’s “resides or is found” requirement is coterminous with due process limitations, the Second Circuit then examined whether specific personal jurisdiction could be found over Santander. In examining specific jurisdiction, the Court noted that it has “always required some causal relationship between an entity’s in-forum contacts and the proceeding at issue.”[viii] The Court concluded that, in the context of third-party discovery, the exercise of specific jurisdiction comports with due process “where the discovery material sought proximately resulted from the respondent’s forum contacts.”[ix] However, if the respondent has “broader and more significant” contacts with the forum, the petitioner “need demonstrate only that the evidence sought would not be available but for the respondent’s forum contacts.”[x] Finding that Santander had only minimal contacts with the SDNY, and that the discovery sought by Petitioners was not limited to documents proximately resulting from those contacts, the Second Circuit affirmed the district court’s dismissal of the petitions seeking discovery from Santander.
Santander, arguing on behalf of SIS, did not challenge the SDNY’s finding that SIS was subject to general personal jurisdiction. Santander claimed, however, that some of the material that would be responsive to the § 1782 order and related subpoena was located in Spain, and claimed, based on lower court decisions, that § 1782 does not authorize a court to compel discovery of documents located outside the United States. The Second Circuit then examined in detail the Eleventh Circuit’s decision in Sergeeva v. Tripleton Int’l Ltd., the first Circuit case to rule on the issue of extraterritorial discovery and § 1782.[xi] In that case, the Eleventh Circuit found that because the Federal Rules of Civil Procedure govern discovery under § 1782, and because the Federal Rules of Civil Procedure authorize extraterritorial discovery of documents as long as the documents are within a party’s possession, custody or control, § 1782 would be governed by the same standard.[xii] The Second Circuit found this reasoning persuasive and “join[ed] the Eleventh Circuit in holding that a district court is not categorically barred from allowing discovery under § 1782 of evidence located abroad.”[xiii] After finding no abuse of discretion in the district court’s decision to grant discovery against SIS, the Second Circuit affirmed.
The Second Circuit’s ruling on whether § 1782 allows for extraterritorial discovery resolved an issue that had been the subject of binary disagreement among the Circuit’s district courts.[xiv] The Second Circuit is a key jurisdiction for § 1782 applications, given the number of financial services institutions maintaining offices and branches under its jurisdiction, and the court’s clarification of this issue is consistent with the clear trend among federal courts favoring a broad interpretation of § 1782. This trend has in turn increased that statute’s use and utility in connection with the litigation of international disputes.
[i] The authors would like to thank Claire C. O’Connell, an associate in King & Spalding’s Trial & Global Disputes Practice in New York. Claire’s practice focuses on international arbitration and litigation.
[ii] In re del Valle Ruiz, No. 18-3226(L), 2019 WL 4924395 (2d Cir. 2019).
[iii] Sergeeva v. Tripleton Int’l Ltd., 834 F.3d 1194 (11th Cir. 2016).
[iv] In re del Valle Ruiz, 2019 WL 4924395, at *2.
[vi] Id. at *3.
[vii] Id. at *5 (internal citations omitted).
[viii] Id. at *6.
[ix] Id. (emphasis added).
[x] Id. (emphasis added).
[xi] Sergeeva v. Tripleton Int’l Ltd., 834 F.3d 1194 (11th Cir. 2016).
[xii] Id. at 1200.
[xiii] In re del Valle Ruiz, 2019 WL 4924395, at *9.
[xiv] Compare Purolite Corp. v. Hitachi Am., Ltd., No. 17-mc-67, 2017 WL 1906905, at *2 (S.D.N.Y. May 9, 2017) (finding that § 1782 does not have extraterritorial application); with In re Accent Delight Int’l Ltd., No. 16-mc-125, 2018 WL 2849724, at *4 (S.D.N.Y. June 11, 2018) (finding that § 1782 does have extraterritorial application).