Legal Tech: Will the U.S. Become a Haven for International Discovery Under Section 1782?

28 U.S. Code Section 1782(A) provides that an individual or entity that resides or is found in a jurisdiction may be ordered to produce documents or give testimony for disputes before foreign or international tribunals, so long as that person or entity is in possession or control of relevant evidence. U.S. courts are split on what is required to show "control" of documents, but generally apply either the "legal right standard" or the "practical ability standard." Under the legal right standard, a party is deemed to have control over documents possessed by others only if the party has the legal right to obtain them. The practical ability standard is broader, expanding the definition of control to include instances where a party has the practical ability to obtain the documents sought, regardless of that party's legal right to the documents.

Once control has been established, potential discovery under Section 1782 must be examined under the four factors identified in Advanced Micro Devices v. Intel, 542 U.S. 241 (2004). The four Intel factors, described in the court's opinion authored by Justice Ruth Bader Ginsburg are:

1. Whether the material sought is within the foreign tribunal's jurisdictional reach and thus accessible absent 1782 aid.
2. The nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court jurisdictional assistance.
3. Whether the 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States.
4. Whether the subpoena contains unduly intrusive or burdensome requests.

Any court analyzing a discovery request under Section 1782 needs to carefully analyze those discretionary factors to determine if the requested discovery is appropriate. However, even if a court determines that the Intel analysis weighs in favor of discovery, there remains the question of the extraterritorial reach of Section 1782 — does it extend to documents that are not even located in the United States? Recently, the U.S. Court of Appeals for the Second Circuit resolved that question in favor of U.S. courts being a forum for obtaining such discovery, following an earlier decision along the same lines decided in the Eleventh Circuit. See, In re Del Valle Ruiz, 939 F.3d 520 (2^nd Cir. 2019), following Sergeeva v. Tripleton International, 834 F.3d 1194 (11^th Cir. 2016).

In the Ruiz case, the petitioners sought discovery relating to the respondent company's knowledge of the financial status of a recently purchased entity. The petitioners brought discovery under Section 1782 against Banco Santander and its New York-based affiliate, Santander Investment Securities Inc. (SIS). Santander and SIS objected to the request, arguing that Section 1782 did not reach documents located outside of the United States.

The Second Circuit examined the split case law from its own district courts, as well as the Eleventh Circuit's precedent in Sergeeva. The Sergeeva court had ruled that, so long as a party has possession, custody or control of the documents or electronic information sought, the requested discovery could be allowed. That court noted that Section 1782 does not exclude discovery of documents or information located outside of the United States and the Ruiz court agreed. The Ruiz court concluded that the geographical location of the information sought is just one factor for courts to consider when exercising their discretion about allowing Section 1782 discovery.

Following its determination that Section 1782 does not prohibit U.S. courts providing a conduit for discovery of documents or ESI located abroad, the court then examined the "resides or is found" language of the statute to determine the jurisdictional threshold for the application of the statute to the respondents. While the statute itself is silent on the subject, the court held that the language of the statute extends the reach of Section 1782 "to the limits of personal jurisdiction consistent with due process." The court proceeded to opine that "where the discovery material sought proximately resulted from the respondent's forum contacts, that would be sufficient to establish personal jurisdiction for ordering discovery. 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. On the other hand, where the respondent's contacts are broader and more significant, a petitioner need demonstrate only that the evidence sought would not be available but for the respondent's forum contacts."

The court used this analysis to determine that it had general personal jurisdiction over SIS, but that Santander's forum contacts were insufficient for the court to exert general personal jurisdiction over Santander. Since the tenets for general personal jurisdiction were not met, petitioners were required to show that Santander's contacts with the forum would be sufficient to establish specific jurisdiction for ordering discovery. In this context, respondents would have to show that Santander's contacts with the forum were the proximate reason that the evidence was available, not merely that the evidence would not have been available but for the forum contacts. Since the petitioner was unable to do so, the Section 1782 motion against Santander was dismissed, but the one against SIS was allowed to proceed.

Another consideration with regard to cross-border discovery that was not addressed in Ruiz matter is the impact of the EU General Data Protection Regulation (GDPR), which provides protection for the personal data of European data subjects. A party subject to a Section 1782 request may not be able to completely avoid cross-border discovery based solely upon the GDPR, but the protection that it provides should be a factor to be examined by any court faced with the decision of whether to order discovery. A district court in the Second Circuit faced a similar question in In re Okean B.V., 60 F.Supp. 3d 419 (S.D.N.Y. 2014), based on European data protection laws that were the precursors to the GDPR. That court did not quash the discovery request based solely upon the presence of confidential personal data, but the court did consider the responding party's potential exposure to sanctions under data protection laws, and the cost associated with "anonymizing" personal data, as relevant considerations, when determining that the Section 1782 subpoena in that case failed to satisfy the Intel factors, since it contained unduly intrusive or burdensome requests.

Based on the limits of personal jurisdiction identified by the Ruiz court, merely doing business in the United States may not, in and of itself, be sufficient to expose a company to discovery under Section 1782. However, with increased globalization, and the concomitant increase of international businesses that could be subject to Section 1782 discovery, international companies should be aware of their potential exposure to Section 1782 discovery, or conversely, their potential to obtain discovery under Section 1782, in aid of international arbitrations or other dispute resolution mechanisms outside of the United States.

Accordingly, following the recent Second Circuit ruling in Ruiz, we can indeed expect to see an increase in international dispute parties taking refuge in Section 1782 and U.S. courts, to obtain discovery that would otherwise be unavailable to them in international dispute resolution proceedings.

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David R. Cohen is a partner at Reed Smith and chairs the firm's records and e-discovery group. He has over 30 years of commercial litigation experience in a variety of subject matters. Cohen serves as special e-discovery counsel in many cases, represents companies in complex litigation matters, and also counsels clients on records management and litigation readiness issues. Bradley C. Whitecap is a part of the firm's records and e-discovery group with 10 years of experience since graduating from the University of Pittsburgh School of Law. He has supervised a variety of projects covering a wide range of subjects, including regulatory investigations, products liability litigation, settlement preparation and records management. This article also appeared in The Legal Intelligencer, an ALM sibling of Cybersecurity Law & Strategy.