2d Circuit Permits Litigants Before Foreign Tribunals U.S.-Style Discovery of Evidence Outside the U.S.

Oct 15, 2019 | Blog

Foreign litigants in non-U.S. proceedings may use U.S.-style discovery to obtain evidence located beyond the U.S., the U.S. Court of Appeals for the Second Circuit recently ruled in In re del Valle Ruiz. The tangled motions and hearings this decision may spawn could put a fine point on the observation of the noted one-time court stenographer Charles Dickens: “The one great principle of the law is to make business for itself.”

In the underlying action, petitioners (a group of Mexican investors) brought claims in foreign courts to contest the legality of the acquisition of Banco Popular Español (“BPE”) by Banco Santander, S.A. (“Santander”), in a government-forced sale, for the price of one single Euro (that’s the actual price, not a typo). The petitioners sought discovery pursuant to 28 U.S.C. § 1782 from Santander and its New York-based affiliate, Santander Investment Securities, Inc. (“SIS”). Santander, on behalf of SIS, claimed that the documents sought were located outside the U.S. and that § 1782 had no application outside the United States. The District Court granted the application for discovery, and the 2d Circuit affirmed.

After noting a split among district courts within the 2d Circuit, the Court adopted the 11th Circuit’s deceptively simple syllogism:

  • 1782 authorizes discovery as pursuant to the Federal Rules of Civil Procedure.
  • The Federal Rules of Civil Procedure permit extra-territorial discovery.
  • Therefore, extra-territorial discovery is permitted under § 1782.

Rather than being eloquent in its simplicity though, the Court’s reasoning elided the  complexities of discovery outside the U.S. First, most countries in the world are civil law systems in which expansive and expensive litigation discovery as practiced in the U.S. is unfamiliar and very daunting. Many, if not most, of these countries (and even the few common law jurisdictions like the United Kingdom) are unlikely to permit wide-ranging discovery even if requested by a U.S. court.

For example, the Federal Rules of Civil Procedure permit extraterritorial discovery by means of letters rogatory, in which the U.S. judge prepares a written request to a judicial authority in the country where the documents and data may be found for the items requested.  These judicial authorities, however, are frequently hostile to broad-based U.S. discovery requests and often reject them. This sentiment was codified in 2018 in the European Union’s General Data Protection Regulation (GDPR) Article 48, which states that a court in an EU Member State may not honor a judicial discovery request comprising personal data unless there is an applicable treaty between the two countries.

Here, the knowledgeable international lawyer will say, “But there is such a treaty: The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (“Hague Convention”). Alas, most signatories to the Hague Convention have opted out of common-law discovery, pursuant to Article 23 of the Convention.

So, we are back to where we started, and Mr. Dickens will be proven right. Jurisdiction over the respondent permitting, more and more foreign litigants will get excited over the prospect of wide-open discovery of data and documents located anywhere in the world and will file many § 1782 applications. Some of them will be granted at the court’s discretion, and then many will run aground on objections from the judicial authorities in the country in which the data or documents are located.

Yes, the law, through In re del Valle Ruiz, will make business for itself as Mr. Dickens predicted, but that business should be pursued judiciously, lest the clients view such applications as ill-advised and quixotic drains on their legal budgets.  Better to first ask whether the data and documents can be found in the U.S., where data is often replicated, or can be obtained through other means such as data swap stipulations between counsel, rather than by tilting at foreign windmills with the illusory lance provided by In re del Valle Ruiz.

If you have questions regarding cost-efficient means of cross-border discovery, please contact Kenneth N. Rashbaum.