Second Circuit Gives Green Light to Foreign Litigants Seeking Discovery in the U.S.

As cross-border business continues to grow, litigation too is increasingly crossing borders. In a recent decision addressing several issues of first impression, the U.S. Court of Appeals for the Second Circuit opted to aid international litigants, interpreting Section 1782 of Chapter 28 of the United States Code to allow discovery in aid of foreign proceedings to be taken in the U.S. from entities that are subject to personal jurisdiction in the U.S. In re del Valle Ruiz, 939 F.3d 520 (2d Cir. 2019). The appellate court held that “there is no per se bar to extraterritorial discovery” in the United States, and that district courts may exercise personal jurisdiction in their discretion, consistent with the mandates of due process, in ruling on an application for discovery under Section 1782. Id. at 524, 533-34. The Second Circuit noted “that a court may properly, and in fact should, consider the location of documents and other evidence when deciding whether to exercise its discretion to authorize such discovery.” Id. at 533.

Armed with this ruling, parties litigating abroad can file a petition in a U.S. district court seeking documents and information, thereby taking advantage of the breadth afforded by American-style discovery. However, the Second Circuit preserved constitutional limitations on this extraterritorial reach by mandating that the target individual or entity from which discovery is sought be subject to personal jurisdiction in the district where the petitioned court sits–holding that Section 1782’s “resides or is found” language extends only to the limits of personal jurisdiction consistent with due process. Id. at 528.

The decision was a victory for Pacific Investment Management Company LLC and Anchorage Capital Group, LLC (the PIMCO petitioners)–investment and asset-management firms–which filed petitions under Section 1782 in the U.S. District Court for the Southern District of New York. The PIMCO petitioners sought to obtain discovery from Banco Santander S.A. (Santander) and its New York-based affiliate, Santander Investment Securities Inc. (SIS) concerning a 2017 transaction in Spain.

In June 2017, Santander purchased Banco Popular Espanol, S.A. (BPE), which was then Spain’s sixth-largest bank, with assets approximating $150 billion. The 2008 financial crisis had filled BPE’s balance sheet with toxic assets, putting the bank at risk of failure and on the brink of bankruptcy after large withdrawals from Spanish government entities in 2016. In lieu of a bankruptcy filing, the Spanish government forced a sale of BPE in June 2017; Spain’s national banking supervisory authority invited several banks to submit bids for the purchase of 100% of BPE’s equity. A single bid–Santander’s, for a total of one euro (€ 1)–was received on June 6, 2017 and accepted the next day.

The forced sale to Santander caused many investors–including the PIMCO petitioners–significant losses, causing a myriad of foreign proceedings challenging the BPE transaction. Among them, the PIMCO petitioners and certain individual investor petitioners led by Antonio del Valle Ruiz filed Section 1782 applications against Santander, seeking documents and communications relating to BPE’s liquidity and the sale. The PIMCO petitioners also sought discovery from SIS. Before the trial court, Santander challenged the extraterritorial reach of the statute–protesting that Santander does not reside in the Southern District of New York, and while its U.S. affiliate SIS resides or is found in the district, SIS was not involved in the BPE acquisition. The district court held that “at a minimum § 1782 must comport with constitutional due process, i.e., the court must have personal jurisdiction” and “none of the Santander entities except SIS met the requirement for general jurisdiction.” In re del Valle Ruiz, 342 F. Supp. 3d 448, 453-57, 459 (S.D.N.Y. 2018) (Ramos, J.).

Accordingly, the trial court denied both petitioners’ discovery requests to Santander but granted the PIMCO petitioners’ discovery requests to SIS. The petitioners appealed, arguing that they were entitled to discovery from Santander, and Santander cross-appealed, arguing that the PIMCO petitioners were not entitled to discovery from SIS.

The Second Circuit resolved the issue of the meaning of “resides or is found” under Section 1782, finding that the statute reaches as far as the constitutional limits of personal jurisdiction, affirming the district court’s holding that SIS had sufficient contacts with the Southern District of New York such that allowing discovery would not violate “traditional notions of fair play and justice.” In doing so, the Second Circuit declined to adopt “a categorically lower showing of due process needed to obtain discovery from a nonparty,” holding that it is “enough for purposes of due process in these circumstances that the nonparty’s contacts with the forum go to the actual discovery sought rather than the underlying cause of action.” In re del Valle Ruiz, 939 F.3d at 530. The Second Circuit also affirmed the district court’s ruling that investor plaintiffs could not seek discovery from Santander in the United States because Santander did not have sufficient minimum contacts in the district prior to the nominal purchase of BPE–the underlying impetus of the case.

This decision will have far-reaching impact on other foreign litigants who seek to enforce Section 1782 petitions in the U.S. to obtain expansive discovery unavailable in foreign courts.