October 8, 2019 / 10:07 PM / a month ago

2nd Circuit: Foreign evidence is fair game for 1782 requests

(Reuters) - As U.S. firms expand their international practices and foreign lawyers realize the advantages of obtaining evidence from their adversaries, U.S.-style discovery has become a feature of international arbitration and litigation. As a result, lawyers in foreign proceedings are turning more frequently to U.S. judges with requests for them to order discovery under Section 1782 of the U.S. Code.

A ruling Monday by the 2nd U.S. Circuit Court of Appeals in In re: Application of Antonio Del Valle Ruiz should help those efforts. Judges Barrington Parker, Peter Hall and Christopher Droney, addressing issues of first impression in the circuit, held that 1782 petitioners can obtain discovery from targets that are not headquartered or incorporated in the districts where the petitions have been filed, as long as they can show that the requested evidence arises from conduct in the district. And perhaps more significantly, the appeals court concluded that 1782 discovery orders extend to evidence held outside of the borders of the U.S.

So, based on the 2nd Circuit’s decision, litigants in foreign proceedings can use 1782 petitions to get hold of foreign evidence from foreign respondents for use in foreign proceedings, as long as they can establish specific jurisdiction over those targets.

The case before the 2nd Circuit involved Banco Santander’s 2017 acquisition of Spain’s Banco Popular Espanol for the whopping total of one euro. Banco Popular, or BPE, had been on the brink of failure for a while, and Santander had previously hired New York advisors from Citigroup and UBS to evaluate a potential bid. Before Santander could make an offer, BPE experienced a bank run, which led European authorities to force a sale. Santander was the only bidder. Its lowball offer meant that BPE shareholders and bondholders were wiped out.

Those out-of-the-money investors launched European actions protesting the takeover. A group of 55 Mexican investors, represented by Kirkland & Ellis, and the U.S. asset managers Pimco and Anchorage Capital, represented by Quinn Emanuel Urquhart & Sullivan, sued in the European Union’s Court of Justice. The Mexican investor group also brought a $500 million international arbitration against Spain; Quinn Emanuel’s clients sought to intervene in a Spanish criminal case against BPE.

Banco Santander and its subsidiaries are not facing liability in any of the investor cases. But both groups filed 1782 actions against Santander and its subsidiaries in federal court in Manhattan, seeking documents related to BPE’s liquidity during both the period of time when Santander was considering a private deal to take over BPE and after the government ordered BPE’s sale. Investors also asked for an order requiring Santander to disclose its communications with regulators about BPE.

U.S. District Judge Edgardo Ramos found (342 F.Supp.3d 448) in October 2018 that he did not have jurisdiction over Santander Bank, but did have authority over Santander Investment Securities, which maintains its principal place of business in New York. On appeal, the investors challenged Judge Ramos’ holding on the court’s reach over the Spanish bank. Santander, represented by Hunton Andrews Kurth, challenged Judge Ramos’ conclusion that 1782 extends to documents held overseas.

The 2nd Circuit’s jurisdictional analysis leaves a lot of room for interpretation. But the appeals court unequivocally rejected Santander’s “cramped” interpretation of personal jurisdiction, holding that Section 1782’s language, which allows discovery against a respondent that “resides or is found” in a district court’s jurisdiction, permits trial judges broad discretion to decide whether to order discovery.

But the requested discovery, according to the 2nd Circuit, must have arisen from the respondent’s actions in the trial judge’s district. The appeals court had the difficult task of trying to graft due process considerations that typically apply in the context of liability to Section 1782 demands, which simply involve discovery requests. Ultimately, the judges concluded that to establish specific jurisdiction over a 1782 respondent, the petitioner must show that the discovery it seeks “proximately resulted from the respondent’s forum contacts,” Judge Hall wrote. “That is, the respondent’s having purposefully availed itself of the forum must be the primary or proximate reason that the evidence sought is available at all.”

In the Santander case, the 2nd Circuit concluded that the bank’s only relevant contact with Manhattan was its retention of Citi and UBS to evaluate a potential acquisition of BPE before European regulators ordered BPE’s sale. Because investors’ claims arose from the forced sale, rather than the aborted private transaction, the 2nd Circuit said, Judge Ramos correctly concluded that he did not have jurisdiction over the bank. (The investors had argued that jurisdiction existed because Santander raised capital in New York in anticipation of an acquisition of BPE; the 2nd Circuit did not address that point.)

The 2nd Circuit’s discussion of the extraterritorial reach of 1782 discovery requests is a lot more straightforward and potentially more consequential. (Remember, Judge Ramos ruled that he has jurisdiction over the New York-based Santander subsidiary SIS, so even though investors aren’t entitled to discovery from Santander itself they can still seek evidence from SIS.) Though the appeals court acknowledged that trial courts within the circuit have read its dicta to suggest 1782 discovery is presumptively restricted to evidence within the U.S., the court said that it sees no reason to apply the presumption against extraterritoriality to a strictly jurisdictional statute. And even if it were to invoke such a presumption, the appeals court said, it would be overcome because Congress incorporated into Section 1782 the Federal Rules of Civil Procedure, which allow for extraterritorial discovery.

The 2nd Circuit noted that the 11th Circuit previously reached the same conclusion, in 2016’s Sergeeva v. Tripleton International (834 F.3d 1194). But, of course, New York is a financial hub, so the 2nd Circuit’s ruling that under 1782, non-party banks may have to turn over extraterritorial evidence in foreign proceedings, probably has broader implications.

A spokesman for the Mexican investor group said in an email that the group is happy with the 2nd Circuit’s ruling on the overseas discovery, though disappointed that the appeals court will not permit discovery from Santander. “The Mexican Investor Group will remain committed to ensure that there is full transparency regarding the facts and circumstances that led to the resolution of Banco Popular, so the tribunals considering this matter can take their decisions based on a full understanding of the facts,” the statement said.

Santander counsel Elbert Lin of Hunton said in an email that the bank is pleased with the 2nd Circuit’s ruling that investors are not entitled to discovery from the bank itself. “We have consistently argued that petitioners inappropriately sought to use Section 1782 to reach a foreign company’s documents related to a foreign transaction,” the statement said. “Discovery related to Santander’s acquisition of Banco Popular Espanol - a transaction in Europe between two Spanish companies - is appropriately governed by the foreign tribunals where the transaction occurred.”

Pimco counsel David Mader of Quinn Emanuel did not respond to an email.

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