A Bump in the Road for the Collection of Evidence for Use in Foreign Legal Proceedings

Mainbrace | March 2018 (No.1)

W. Cameron Beard and Lauren B. Wilgus

As discussed in prior issues of Mainbrace, parties to for­eign legal proceedings can collect evidence in the United States for use abroad by invoking a U.S. statute, 28 U.S.C. § 1782 (“section 1782”). Section 1782 is a powerful tool, and allows either foreign courts or foreign litigants to seek orders directly from U.S. federal district courts for the taking of testimony or the disclosure of documents in this country. Notably, litigants can often obtain section 1782 relief quickly and without undue burden or delay, because the statute can be invoked independently of, and does not require prior resort to, the Hague Evidence Convention.

Various disputes regarding the proper scope of section 1782 have arisen over the years. Some of the major disputes have been conclusively resolved. For exam­ple, in 2004 the U.S. Supreme Court resolved a significant conflict among the lower federal courts, and ruled that under section 1782 a foreign party may obtain broad dis­covery of the kind generally available in U.S. litigation, even if such discovery would not be allowed under the laws of the foreign forum where litigation is pending. Other vexing issues, however, remain unresolved. For example, the ques­tion of whether section 1782 may be used for the collection of evidence for purely private arbitrations remains unsettled. We have discussed these and other issues previously.

The Daimler and Gucci Decisions

An important issue that has arisen only fairly recently, how­ever, relates to the requirement that a court have personal jurisdiction over a witness before the witness may be com­pelled to give evidence. More specifically, the question has arisen whether a 2014 decision of the U.S. Supreme Court, which limits the extent to which federal courts may exercise personal jurisdiction over foreign corporations, limits in par­allel fashion the extent to which courts may issue discovery orders against foreign corporations pursuant to section 1782. The issue is rather complex from a legal perspective; however, it may have serious day-to-day implications with respect to the collection of evidence in the United States, and therefore warrants discussion.

In Daimler AG v. Bauman, 134 S.Ct. 746, 187 L.Ed. 2d 624 (2014), the U.S. Supreme Court laid down a rule that has been widely interpreted as requiring that, for a foreign corporation to be subject to the “general” jurisdiction of a court (i.e., for a corporation to be subject to the jurisdiction of a court with respect to any cause of action, irrespective of whether the cause of action relates to the state where suit is brought), the corporation must either be incorporated or have its principal place of business in the forum state. This rule, while theoretically softened by a more recent Supreme Court decision,[1] represents in any event a significant narrowing of prior law, which had allowed for the exercise of general personal juris­diction in a broader range of cases, with reference to the extent of the foreign corporation’s in-state activities. Daimler did not affect, however, rules regarding the subjection of a foreign corporation to the “specific” jurisdiction of a court (i.e., rules governing jurisdiction over a foreign corporation based on the corporation’s activities conducted in the forum state, or activities affecting the forum or the forum state’s residents).

In Gucci Am., Inc. v. Weixing Li, 768 F.3d 122, 141 (2d Cir. 2014), the U.S. Court of Appeals for the Second Circuit, whose decisions are binding on the lower federal courts in New York, Connecticut, and Vermont, held that the Daimler analysis extends not only to the exercise of jurisdiction over corporate parties to a litigation, but also to the exercise of jurisdiction over non-party corporate recipients of subpoe­nas. In a nutshell, the Gucci decision adopted an approach whereby if a foreign corporation does not maintain its prin­cipal place of business in the jurisdiction where a subpoena is issued, a subpoena issued to that corporation can be enforced only if the party seeking the subpoena can demon­strate that the corporation is subject to the court’s specific jurisdiction—essentially by establishing that the corpora­tion’s contacts with the forum relate to the evidence sought.

Section 1782 and the Requirement of Personal Jurisdiction over Foreign Corporations

For purposes of this article, it is relevant that in three very recent cases, judges of the U.S. District Court for the Southern District of New York have applied the Daimler and Gucci analysis in the context of section 1782 applications.[2] In those cases, the judges noted that section 1782, by its terms, requires a witness to “reside” or “be found” within the federal district where section 1782 relief is sought, and held that that a foreign corporation is “found” in a federal district only when it is subject to personal jurisdiction in the forum state. Faced with the rules laid down in Daimler and Gucci, the petitioners in those cases were unable to estab­lish general jurisdiction over foreign entities that had no principal place of business in New York. More significantly, however, their section 1782 applications were denied, because they either did not seek or could not adequately establish specific personal jurisdiction by demonstrating that the target corporation’s contacts with the forum related to the discovery they were seeking.

In practice, the New York case law discussed above, if it is not overruled by a higher court, will likely complicate the process of obtaining section 1782 relief against foreign corporations that do not maintain their principal place of business in the state where relief is sought, and may also limit the scope of evidence that can be obtained. Under this case law, a party seeking section 1782 evidence from a foreign corporation would be well-advised to address the issue of personal jurisdiction as a preliminary matter, and be prepared to establish the existence of specific personal jurisdiction over the foreign corporation by demonstrat­ing a nexus between the target’s forum activities and the evidence sought. Even assuming this nexus can be shown, however, it may well be more difficult (although not impossi­ble) to obtain evidence that is held by a foreign corporation outside the district where section 1782 relief is sought, or evidence that does not relate more or less specifically to the company’s activities within the state where the federal dis­trict court is located.

It bears noting that not all U.S. federal courts faced with the issue have followed the Daimler analysis in the context of section 1782 proceedings. A 2017 decision from the Northern District of California, for example, recognized the above-referenced Second Circuit rule, but declined to follow it, and held that section 1782 discovery could be taken from a corporation that simply maintained an office, and not a principal place of business, within the pertinent state. Accordingly, different analyses may be applied by differ­ent federal district courts, and it is too early to predict any national trends.

Conclusion and Recommendations

Nevertheless, the recent New York cases cannot be ignored, and the issue is likely to come up in an increasing number of court decisions interpreting section 1782. Accordingly, in crafting applications for section 1782 relief against foreign corporations that do not have a principal place of business in the federal district where relief is sought (for example, in preparing applications seeking evidence held by U.S. branches of foreign banks), one should be prepared to demonstrate not only compliance with the other require­ments for section 1782 relief (discussed in prior issues of Mainbrace), but also the propriety of subjecting the target entity to specific jurisdiction by virtue of in-state activities relating to the evidence being pursued.

Creative lawyers may seek to bypass the case law referenced above by seeking section 1782 relief against individuals rather than corporations, or in appropriate cases by invoking rules specifically aimed at assisting judgment creditors or, alternatively, turning to provisions of the U.S. Bankruptcy Code that permit the collection of evidence in aid of foreign bankruptcy proceedings. The extent to which the Daimler analysis might come into play even in those contexts remains to be seen. In any event, it is clear that personal jurisdiction is now an issue to be considered carefully before initiating any application for section 1782 relief against a foreign cor­poration.

[1] In BNSF Ry. V. Tyrrell, 137 S. Ct. 1549 (2017), the Supreme Court held open the possibility that “in an exceptional case” a foreign corporation without a principal place of business in a state might still be subject to general personal jurisdiction by virtue of operations in the forum state “so substantial and of such a nature as to render the corporation at home in that State.” As a dissenting Supreme Court Justice noted, however, the majority’s decision in BNSF was “so narrow as to read the exception out of existence entirely.” (Sotomayor, J.)

[2]Austl. & N.Z. Banking Grp. Ltd. v. APR Energy Holding Ltd., No. 17-MC-00216, 2017 U.S. Dist. LEXIS 142404 (S.D.N.Y. Sept. 1, 2017); In re Application of Sargeant, No. 17mc374, 2017 U.S. Dist. LEXIS 167248 (S.D.N.Y. Oct. 10, 2017); In re Fornaciari, No. 17mc521, 2018 U.S. Dist. LEXIS 20182 (S.D.N.Y. Jan. 29, 2018).

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