Legal Update
Jun 7, 2021
The Expanding Use of 28 USC § 1782
Federal law provides a powerful tool for litigants engaged, or about to engage, in litigation in a foreign forum: 28 U.S.C. § 1782. The statute allows discovery in the United States, under the broad US discovery rules, for use in a foreign proceeding. (You can read our previous coverage here, here, here, and here). Over the past decade, Section 1782 applications have increased dramatically. Although it remains to be seen whether the trend will continue in 2021, a number of court decisions from the first half of this year illustrate the promises and pitfalls for litigants seeking US discovery in connection with their foreign litigation.
The Increased Use of Section 1782
Based on our firm’s review of reported decisions, the dramatic increase in Section 1782 applications in federal courts coincides with an overall rise in cross-border litigations and disputes. From 2012 through 2016, the number of applications was relatively small, ranging from approximately 25 to 45 applications per year. Things began to pick up slowly in 2016, and then more dramatically, with approximately 60 applications in 2017, nearly 80 in 2018, and more than 90 in 2019.
The trend continued in 2020, with approximately 120 applications filed. Some commentators link this increase to a 2019 Second Circuit decision (which you can read about here), holding that Section 1782 discovery can be used to obtain documents from U.S. persons or entities even when the documents themselves are outside the United States.1 Although the initial growth trend actually pre-dated the Second Circuit’s decision, the court’s expansive application of Section 1782 does seem to have accelerated use of the statute.
Additionally, the COVID-19 pandemic may have also contributed to the “spike” in 2020. Litigators across the globe looked for new ways to obtain discovery at a time when litigation worldwide was slowed and, to some extent, made more difficult. Ironically, with the ubiquitous use of video depositions and trials, and practitioners learning to use these tools, seeking discovery through Section 1782 became a more appealing tool.
Moreover, the statute is user-friendly. Since 2012, federal courts have granted in full approximately 54% of the Section 1782 petitions that they have heard, with an additional 19% of petitions having been granted in part. It certainly seems more likely than not that a Section 1782 application warrants the investment of time and money.
Notwithstanding what appears to be a leveling off in the number of Section 1782 applications, it is clear that courts in 2021 are continuing to address the scope of the statute. Although the legal press recently has focused on the US Supreme Court deciding in March 2021 to hear a case on whether private arbitrations are “proceedings” for purposes of Section 1782,2courts continue to address the statute’s reach in other, important ways, providing both guidance and warnings to potential Section 1782 petitioners.
Court of Appeals Decisions Regarding Section 1782
The First and Second Federal Circuits have both addressed Section 1782 issues in 2021. In the First Circuit, the appeals court affirmed the district court’s denial of a motion to intervene by plaintiffs in the foreign proceeding for which discovery was sought and also affirmed the district court’s grant of Section 1782 discovery.3There, a defendant in pending German litigations sought discovery from the US affiliates of certain of the German plaintiffs.4
The German plaintiffs argued that they should have been permitted to intervene to challenge the defendant’s Section 1782 applications, primarily arguing that the lower court applied the wrong standard of review.5The First Circuit was “unimpressed” with this argument, holding that it “resembles the thirteenth chime on a clock: You not only know it is wrong, but it also causes you to wonder about everything else you hear from that clock.”6The court also held that the request to intervene was properly denied “because the discovery was sought from the” plaintiffs’ affiliates, not the foreign plaintiffs themselves.7
With respect to the merits of the Section 1782 application, the First Circuit agreed with the district court that discovery was proper, particularly because “the district court did not approve sweeping discovery without limitations; instead, the district court ordered the parties to confer and narrow certain definitions.”8The appeals court also noted that there was “no plausible argument that the information sought would not be welcomed for use in the proceedings in” Germany.9
The First Circuit acknowledged that the affiliates did “make one point worth further discussion”: the procedural posture of the German proceedings was such that they were “(somewhat) similar to a class action” in the US, and the German plaintiffs in question were akin to “passive class members.”10The court noted that, in a US class action, discovery is not permitted against passive class members unless the district court finds “multiple factors” weigh in favor of such discovery, “including whether the defendant has a good faith purpose and whether the request is unduly burdensome.”11The First Circuit suggested that a similar approach should apply to this case given the posture of the German litigations, but that discovery was still warranted: the discovery targets were affiliates of “the largest group of investors in the German Actions” who did not “passively f[i]nd themselves in a class action without themselves initiating suit,” and “[t]he German tribunal . . . has signaled that it is receptive” to the information sought.12
The Second Circuit, by contrast, reversed a lower court’s decision granting Section 1782 discovery, finding in that case that the Section 1782 subpoena must be quashed.13There, a plaintiff in litigation in Cyprus sought Section 1782 discovery from family members of, and the trustee of trusts set up by, one of the Cypriot defendants.14The Second Circuit found that the “litigation in Cyprus is centered on [the individual defendant’s] alleged participation in a fraudulent scheme between 2005 and 2007,” while the Section 1782 discovery sought “relates to [her] current assets and is therefore unlikely to bear on the alleged fraud.”15
The plaintiff in the Cyprus litigation admitted that the discovery was aimed at determining whether the individual defendant had failed to comply with asset “freezing and disclosure obligations in the Cyprus court.”16 The appeals court reasoned that this discovery was, accordingly, not really for “the ongoing litigation in Cyrus,” but rather for a “contempt proceeding that [the plaintiff] may decide someday to bring.”17The Second Circuit explained that “a possibility [of a foreign proceeding] is not enough” because a Section 1782 applicant must provide the court with a “concrete basis from which it can determine that the contemplated proceeding is more than just a twinkle in counsel’s eye.”18The Second Circuit held that the Cypriot plaintiff’s potential contempt proceeding “is too remote to satisfy § 1782.”19
District Court Decisions Regarding Section 1782
District courts have also been busy analyzing Section 1782 applications in 2021. A sample of decisions from across the country reveals some important practice points for litigants.
The Southern District of New York granted an ex parte petition for Section 1782 discovery against various banks. The petitioner was the plaintiff in a pending U.K. litigation, and was also contemplating bringing another action in the U.K.20The district court held that discovery was appropriate because, among other things, the banks were non-parties to the foreign proceedings, the U.K. courts appeared receptive to the information sought, and the subpoenas were “not unduly intrusive or burdensome.”21The court also waived the requirement that the petitioner serve its application and the Court’s order on the potential defendants in the contemplated U.K. proceeding. The court explained that “notice could provide the potential defendants [in the U.K.] with opportunity to conceal or destroy evidence,” and the chance that those “potential defendants will tamper with evidence” upon learning that the plaintiff intends to sue them in the U.K. weighed against requiring service.22
Elsewhere, a Delaware district court granted in part and denied in part an application for Section 1782 discovery relating to pending litigation in Italy and an arbitration in the Netherlands.23The claimant in the Dutch arbitration proceeding, which was a defendant in the Italian litigation, sought discovery from various LLCs that allegedly were doing business with the respondent in the Dutch arbitration.24The court rejected the LLCs’ argument that the evidence would not be admissible in the Italian litigation, holding that “Section 1782 . . . does not require the district court to conduct such a speculative inquiry,” but rather only that the court find that the information will be “for use” in the proceeding, i.e., “employed with some advantage or serve some use in the proceeding.”25The court also rejected the LLCs’ argument that the arbitration did not qualify as a foreign “proceeding” for purposes of Section 1782 because the LLCs claimed it was a “private arbitration.” The court held that because the arbitration was being conducted pursuant to the International Centre for Settlement of Investment Disputes Convention, it was not a “private arbitration.”26
The court did, however, find some merit in the LLCs’ argument that the “requests are unduly burdensome.” In particular, the Section 1782 requests sought “all documents” on certain topics and information about relationships between the LLCs and individuals not directly connected to the respondent in the Dutch arbitration.27The court utilized “its authority under the Federal Rules of Civil Procedure to modify the subpoenas accordingly.”28
And finally, a district court in Colorado issued a relatively rare denial in full of a Section 1782 application.29There, an individual sought discovery from two Colorado residents in connection with “contemplated foreign proceedings in Mexico.”30The Colorado court noted that discovery can be “for use” in a forthcoming proceeding only if that proceeding is “within ‘reasonable contemplation,’” as Section 1782 “should not be used to enable a fishing expedition, whereby the petitioner uses the discovery process in a blind effort to find damaging evidence to be used against an adversary without any specific underlying legal claims or theory of liability.”31
The court held that the petitioner’s supporting declaration left the court “entirely unclear” as to what legal claims he might pursue in Mexico.32A declaration from the petitioner’s Mexican law expert was vague, with the court comparing it “to an American attorney stating that—depending upon the evidence uncovered—[the potential Mexican defendant] could bring an action against [the Section 1782 petitioner], or some other resident of the United States, asserting legal claims under federal or state law, or could make a criminal complaint to a state or federal prosecutor.”33In other words, petitioner and his expert did not identify any particular causes of action, particular parties, or even a particular forum (civil litigation versus criminal proceeding). Thus, the petitioner’s assertions were “simply insufficient to identify an adjudicative proceeding within ‘reasonable contemplation’ as intended by Congress.”34
Takeaways
Section 1782’s use is becoming more frequent, and the rate of success among Section 1782 petitioners tends to be high, with nearly 75% of petitions granted at least in part. As these recent decisions show, however, courts do not simply rubber stamp Section 1782 applications. The decisions from the First Circuit, Southern District of New York, and Delaware underscore the need for narrowly tailored, targeted discovery requests. The decisions from the Second Circuit and Colorado, meanwhile, confirm that petitioners seeking discovery for foreign litigation not yet filed should be prepared to present the court with specifics about their plan for bringing an overseas litigation before seeking relief.
Seyfarth Shaw LLP summer fellow Nicholas Lussier contributed research for this article.
1. See https://www.law360.com/articles/1324502/cross-border-discovery-trends-1-year-after-2nd-circ-ruling.
2. https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/20-794.html.
3. In re Ex Parte Porsche Automobil Holding SE v. John Hancock Life Ins. Co., 985 F.3d 115 (1st Cir. 2021).
4. Id. at 117-18.
5. Id. at 118-19.
6. Id. at 119.
7. Id.
8. Id. at 120.
9. Id.
10. Id.
11. Id.
12. Id.
13. Gorsoan Ltd. v. Sundlun, 843 F. App’x 352 (2d Cir. 2021).
14. Id. at 353-54.
15. Id.
16. Id. (internal quotation marks omitted).
17. Id.
18. Id. at 355.
19. Id.
20. In re Application of Deposit Guar. Fund Ukraine, 2021 U.S. Dist. LEXIS 76715 (S.D.N.Y. Apr. 21, 2021).
21. Id. at *3-4.
22. Id. at *4-5.
23. In re Ex Parte Eni S.P.A., 2021 U.S. Dist. LEXIS 52304 (D. Del. Mar. 19, 2021).
24. Id. at *3-5.
25. Id. at *6-7 (internal quotation marks omitted).
26. Id. at *8-9.
27. Id. at *13-16.
28. Id. at *16 (internal footnote omitted).
29. In re Application of Mattson, 2021 U.S. Dist. LEXIS 82545 (D. Colo. Apr. 29, 2021).
30. Id. at *3-4.
31. Id. at *10.
32. Id. at *11-12.
33. Id. at *12-13.
34. Id. at *13.