Discovery

The Third Circuit has vacated and remanded a district court’s decision quashing a subpoena issued pursuant to 28 U.S.C. § 1782, which allows a party to procure discovery for us in a foreign proceeding, finding that the district court had misunderstood certain facts and not given adequate consideration to others.

The discovery in question was sought in connection with a trade-secret dispute being litigated in a German court between Biomet, Inc. and Heraeus Kulzer GmbH. Biomet initiated a section 1782 action in the Eastern District of Pennsylvania to subpoena the production of all documents produced in a prior, related matter that were in the possession of two law firms (neither representing Biomet or Heraeus) in Philadelphia. Section 1782 provides in part that “[t]he district court of the district in which a person resides or is found may order him to . . . to produce a document or other thing for us in a proceeding in a foreign or intentional tribunal, including criminal investigations conducted before formal accusation.” Heraeus objected to the discovery request, arguing that the subpoena did not comply with section 1782, as interpreted by the Supreme Court in Intel Corp. v. Advanced Micro Devices. The district court quashed the subpoena.

On appeal, the Third Circuit found that the subpoena did comply with the statute, rejecting an argument that section 1782 did not apply to these documents because they were held by law firms rather than Heraeus, which was the real party in interest, as the plain language of the statute did not require the court “to consider a principal-agent relationship, or whether the documents being held by the subpoenaed party belong to a foreign party.” The court then looked at the Intel factors and found that the district court’s consideration of these factors was “cursory and conclusory” and “relied upon an incomplete understanding of the pertinent facts surrounding the German proceeding.” Specifically, the Third Circuit found that the district court erred in finding that Biomet had delayed in requesting the documents, incorrectly placed the burden on Biomet to show that the German court would be receptive to this discovery, and erred by flatly rejecting the discovery based on concerns regarding the disclosure of proprietary information without requiring the parties to negotiate regarding the scope of the discovery or the entry of an appropriate protective order. The Third Circuit thus remanded the matter to the district court for reconsideration, while particularly stating that “it will be within the District Court’s discretion to grant or deny the motion to quash the subpoena.

In re Biomet Orthopaedics Switzerland GmbH Under 28 U.S.C. § 1782 for Order to Take Discovery for Use in Foreign Proceeding, No. 17-3787 (3d Cir. Aug. 6, 2018).

This post written by Jason Brost.

See our disclaimer.

A group of minority shareholders of Acheron Portfolio Corporation Luxembourg S.A. have convinced a federal district court in New York to permit them to subpoena several large banks for documents in aid of the shareholders’ plan to file a criminal action in Luxembourg against the director of Acheron, Jean-Michel Paul. The shareholders allege that Paul improperly failed to disclose his ownership interest in Litai, a company that Acheron hired to administer life insurance policies in which Acheron had invested. The petitioners assert Paul’s ownership interest in Litai created a conflict of interest with his position at Acheron.

The petitioners applied to the court under 28 U.S.C. § 1782 for permission to issue the subpoenas. Section 1782 serves two purposes: “providing efficient means of assistance to participants in international litigation in our federal courts and encouraging foreign countries by example to provide similar means of assistance to our courts.” There are three statutory prerequisites to obtaining relief under section 1782. “First, the person from whom discovery is sought must reside or be found in the district of the district court where the application is made; second, the discovery must be for use in a proceeding before a foreign tribunal; and third, the application must be made by the foreign tribunal or “any interested person.”

Once the statutory requirements are met, the district court has “wide discretion” whether to issue the discovery orders. Generally, the court should consider four discretionary factors: (1) whether the documents are within the foreign tribunal’s jurisdictional reach, (2) the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or court abroad to U.S. federal court assistance, (3) whether the section 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States, and (4) whether the subpoena contains “unduly intrusive or burdensome requests.”

Here, the shareholders overcame the fact that no action was pending by submitting a sworn statement that they “intend to file a criminal complaint against Paul in the Luxembourg Criminal Court and have articulated a specific legal theory on which they intend to rely.” Paul and Litai argued that it was “clear” that the shareholders had no “basis for bringing a criminal complaint in a Luxembourg court and therefore this application is simply a fishing expedition.” The court, however, determined that it was not tasked with considering the merits of the foreign proceeding when presented with an application under section 1782. Although it acknowledged that Paul and Litai “may be right” that the shareholders would ultimately fail, it nevertheless granted their request to issue the subpoenas to the banks. In re Application of Furstenberg Finance SAS, No. 18-mc-44 (USDC S.D.N.Y. July 12, 2018) (Memorandum Opinion & Order) & (Final Order)

This post written by Benjamin E. Stearns.

See our disclaimer.

Hoteles City Express sought an order granting it permission to issue a subpoena to obtain documents from non-party Facebook, Inc. to show the subscriber identity for a Facebook page allegedly containing defamatory statements regarding Hoteles to be used in a lawsuit in Mexico.

The Northern District of California initially denied Hoteles request absent “additional information regarding the nature of the defamatory statements made and contained on the Facebook account for which Hoteles seeks identifying information.” Furthermore, it concluded that “Hoteles has provided insufficient information for the Court to determine whether it could actually state a claim for defamation under Mexican law.”

Hoteles was directed to, and subsequently did, amend its application. The Court granted the amended application, finding Hoteles had cured its prior defects and finding good cause to grant the requested discovery.

In re Hoteles City Express, Case No. 18-mc-80112 (N.D. Cal. July 13, 2018 & August 8, 2018)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

In a case that had been filed and then stayed in a New York federal district court in connection with an ongoing arbitration involving alleged violations of federal securities laws, the plaintiffs filed a motion to enforce two subpoenas issued by the arbitrators. The arbitral subpoenas were issued to two non-party witnesses who were refusing to appear to testify at the arbitration hearings. The defendants and the non-parties did not challenge the subpoenas as being invalid, improperly issued by the arbitrators, or improperly served. Instead, they argued that the court should apply its discretion and determine that the requested testimony would be improper rebuttal, duplicative, and overly burdensome. The court rejected defendants’ and the non-parties’ arguments and found that if the arbitration panel, which had sat through more than thirty days of hearings over two years, believed that the non-parties’ testimony was appropriate, the court could find no basis to quash either subpoena. Notwithstanding that the court had the authority to assess the value of the requested testimony, it was not obligated to make that assessment and was not sufficiently informed to do that here. The court found that the arbitrators were best-suited to do so, and ordered compliance with the subpoenas. Shasha v. Malkin, Case No. 1:14-cv-09989 (USDC S.D.N.Y. July 5, 2018).

This post written by Michael Wolgin.

See our disclaimer.

In a petition brought under 28 U.S.C § 1782, petitioner sought discovery of documents outside the United States. Recognizing the Second Circuit had not ruled on whether such discovery was authorized by Section 1782, the Court looked to precedent from the Eleventh Circuit, which had previously allowed such discovery abroad. “Section 1782 imposes no geographical limit on the production of documents” and to the extent courts have done so, it was “for reasons of legislative history and policy.” The Court found that the factors discussed by the Eleventh Circuit favored petitioner’s application with respect to documents relating to a criminal proceeding in Monaco, and permitted some – but not all – of petitioner’s discovery requests.

The petition also sought discovery in aid of criminal proceedings in Switzerland. Finding the petitioner satisfied the statutory requirements with respect to the Monaco proceedings, the Court found Section 1782 did not require the petitioner to “satisfy the statutory requirements for each foreign proceeding for which he or she wishes to use the requested discovery.”

In re Application of Accent Delight Int’l Ltd and Xitrans Finance Ltd., 16-MC-125 (USDC S.D.N.Y. June 11, 2018)

This post written by Nora A. Valenza-Frost.

See our disclaimer.