Update on U.S. Discovery for Foreign Proceedings – the Personal Jurisdiction Requirement

       By Karen E. Clarke, Of Counsel

As discussed in our June 8, 2016 article, 28 U.S.C. § 1782 enables foreign litigants to obtain evidence from U.S. persons for use in a foreign proceeding.  Three recent decisions by two Judges in the Southern District of New York have raised interesting questions regarding how strong a showing of personal jurisdiction over the target company is needed to support a discovery order under § 1782.  Although the statute itself requires only that the target “reside” or be “found” in the court’s district, the recent decisions have required the applicant to demonstrate that the target is subject to general personal jurisdiction under the Supreme Court’s restrictive “at home” test articulated in Daimler AG v. Bauman, 134 S. Ct. 746 (2014).

Australia & New Zealand Banking Group Ltd. v. APR Energy Holding Ltd.

In Australia & New Zealand Banking Group Ltd. v. APR Energy Holding Ltd., 2017 WL 3841874 (S.D.N.Y. Sept. 1, 2017), Judge Valerie Caproni granted ANZ Bank’s motion to quash a subpoena that had been issued to ANZ Bank’s New York branch office pursuant to an ex parte § 1782 application in which APR sought documents for use in its UNCITRAL arbitration against Australia over an alleged expropriation of APR’s private property.  Judge Caproni held that the subpoena could not be enforced because the court lacked personal jurisdiction over ANZ Bank.

As previously noted (here and here), one of the threshold statutory requirements of § 1782 is that the person from whom discovery is sought “resides or is found” in the district in which the application is made.  In ANZ Banking Group, Judge Caproni observed that whether this “resides or is found” requirement equates to a general personal jurisdiction requirement “is unclear.”  2017 WL 3841874 at *3.  Nonetheless, “regardless of what section 1782 requires, the Constitution’s due process protections apply.”  Id.  The court held, following Gucci Am., Inc. v. Weixing Li, 768 F.3d 122, 141 (2d Cir. 2014), that the Constitutional due process requirements were not satisfied as to ANZ Bank.

In Gucci, the Second Circuit had held that a federal court must have personal jurisdiction over a non-party to compel it to comply with a subpoena under Fed. R. Civ. P. 45, and Judge Caproni saw “no meaningful distinction from a constitutional standpoint between a subpoena issued to a non-party pursuant to Rule 45 and a subpoena issued to a non-party pursuant to section 1782.”  2017 WL 3841874 at *3.  The Gucci court had applied the stringent “essentially at home” general personal jurisdiction test articulated by the U.S. Supreme Court in Daimler in determining that the court did not have general jurisdiction over a non-party foreign bank because “the mere fact that the bank had branch offices in New York did not satisfy the Constitution’s due process requirements.”  Id. (citing Gucci, 768 F.3d at 135, 141).  Similarly, ANZ Bank, which was chartered and headquartered in Australia and had a branch office in New York that accounted for only a small percentage of its business, could not be considered “at home” in New York and was not subject to general jurisdiction sufficient to enforce the § 1782 subpoena.  Id. at *4.

Judge Caproni also rejected APR’s argument that ANZ Bank had consented to personal jurisdiction in the district by registering its New York branch as a U.S. federal branch of a foreign bank under the International Banking Act (“IBA”), subjecting itself to U.S. federal regulation.  Following other post-Daimler decisions in the Second Circuit and elsewhere, she explained that “[n]othing in the IBA causes [a foreign bank’s] branches to be ‘at home’ in the U.S.,” and “[t]he lack of express language in the IBA and related regulations providing that a foreign bank consents to general jurisdiction precludes a finding that ABZ Bank consented to general jurisdiction when it subjected itself to the IBA.”  Id. at *4-5.

Judge Caproni also considered whether specific personal jurisdiction might be sufficient to support a § 1782 subpoena.  Although the case law on this issue “is sparse and unsettled,” a specific jurisdiction analysis would focus on “the connection between the nonparty’s contacts with the forum and the discovery order at issue.”  Id. at *5.  Specific jurisdiction would not exist in the ANZ Banking case because there was “no nexus between ANZ Bank’s New York contacts and the subject matter of the discovery sought by APR pursuant to the section 1782 subpoena,” and “[n]one of the requested discovery is located in the United States.”  Id.

The conclusion might have been different if APR had been seeking documents regarding accounts or transactions that were actually maintained or conducted at the New York branch of ANZ Bank.  As the requested materials were located in Australia and not connected to the New York branch, however, the court may have viewed APR’s application as an improper attempt to use the U.S. discovery statute to obtain Australian evidence that should more properly be sought, if possible, through Australian procedures.

APR’s appeal of this decision is presently pending in the Second Circuit (dkt. no. 17-3164).  APR’s arguments include that ANZ Bank’s registration under the IBA, agreeing to be subject to federal oversight in return for the privilege of doing business, should suffice to confer personal jurisdiction for the limited purpose of enforcing an informational subpoena (as contrasted with imposing liability); that ANZ Bank “is found” in New York within the meaning of § 1782 because its New York branch has had continuous and systematic business in New York for 50 years, employing over 100 people and generating income over $100 million; and that Constitutional due process does not require that a § 1782 subpoena recipient meet the stringent “at home” test of Daimler, which was a case seeking to impose liability rather than merely to obtain document discovery.

In re Sargeant

Judge William Pauley raised the jurisdictional hurdle a bit further in In re Sargeant, 2017 WL 4512366 (S.D.N.Y. Oct. 10, 2017), ruling that a § 1782 applicant was required to demonstrate the existence of general jurisdiction under the Daimler “at home” standard in his initial ex parte application papers, prior to any objection by the target.  (Normally, lack of personal jurisdiction is an affirmative defense that may be waived; but if the defense is asserted by the respondent, as it was in the ANZ Banking case, the applicant bears the burden to establish jurisdiction.)

Sargeant, a plaintiff in a Panamanian attachment proceeding, sought discovery from Burford Capital, LLC, a litigation funding company that had obtained relevant documents in connection with a separate litigation involving some of the same parties.  Judge Pauley determined that “Sargeant’s failure to demonstrate that Burford ‘resides’ or ‘is found’ in the Southern District of New York sinks his application.”  2017 WL 4512366 at *3.  After reviewing the commentary of a leading academic who participated in drafting the statute, the rationale of the Supreme Court’s Daimler ruling, and prior Second Circuit decisions, Judge Pauley concluded that the “resides or is found” language of § 1782 does equate to the Constitutional general jurisdiction requirement.  Therefore, “to ‘reside’ or be ‘found’ in a district for purposes of § 1782, a corporate entity must at the very least be subject to the court’s general jurisdiction under Daimler.”  Id. at *3.

Sargeant’s ex parte application failed to make this showing.  As Judge Pauley explained, “At most, the papers supporting the application indicate that Burford, a foreign limited liability company, maintains one of its ‘primary business offices’ at 292 Madison Avenue” in New York City.  “Burford is clearly not incorporated or formed under the laws of New York, and the mere fact that it maintains an office in New York City … does not establish that its principal place of business is its midtown Manhattan location.  Nor is the bare allegation that Burford conducts business in New York sufficient to establish that its operations in that office are “so substantial and of such a nature” as to render Burford at home in New York.”  Id. at *4 (citing Gucci and Daimler).

Judge Pauley did not discuss a specific jurisdiction analysis in In re Sargeant, presumably because it was not raised (for example, by an argument in the application that the documents sought were specifically related to activities in Burford’s New York office).

In re Fornaciari

Judge Pauley did recognize the possibility of a § 1782 application resting on a specific jurisdictional predicate in In re Fornaciari, 2018 WL 679884 (S.D.N.Y. Jan. 29, 2018).  There, he granted the application for subpoenas to several entities deemed to reside in New York, but denied the application as to the Royal Bank of Canada.

Judge Pauley reiterated that although § 1782 does not define what it means to reside or be found in a district, “at minimum, ‘compelling an entity to provide discovery under § 1782 must comport with constitutional due process.’”  This requires, Judge Pauley stated, that Royal Bank’s “affiliations with the State [be] so ‘continuous and systematic’ as to render [it] essentially at home in the forum State,” or “that it have sufficient contacts with the forum that relate to the requested discovery or from which the discovery order arises.”  2018 WL 679884 at *2 (emph. added).

Nonetheless, Fornaciari did not meet either standard on his ex parte application.  As Judge Pauley explained, “to the extent that he premises general jurisdiction on the mere existence of Royal Bank’s offices in this District, such argument is foreclosed by Daimler”; and “aside from speculation, Fornaciari does not explain what Royal Bank’s relevant contacts with the forum are or how the requested discovery arises from or relates to these contacts.”  Id.  Accordingly, the application was denied without prejudice as to Royal Bank, and Fornaciari was given the opportunity to supplement the record if he wished.

Conclusion

All three decisions embrace the view that an applicant for § 1782 discovery assistance is obliged to meet the same post-Daimler Constitutional due process standards as must be met in a plenary action seeking to impose substantive liability on a defendant.  There may be an argument, however, that because § 1782 “is simply a discovery mechanism and does not subject a person to liability,” In re Edelman, 295 F.3d 171, 179 (2d Cir. 2002), it should be subject to a less demanding jurisdictional standard than a substantive action is.

Further, Judge Pauley’s two opinions indicate that applicants for § 1782 discovery orders will be expected to make the full jurisdictional showing on their initial ex parte application, without awaiting any objection by the target company.  Since personal jurisdiction is typically a waivable affirmative defense, and since the applicant may lack the information needed for a full Daimler analysis of the substantiality of the target’s business in or contacts with the forum, it would be reasonable to allow the applicant to make a colorable showing that the target somehow “resides or is found” in New York and then wait to see if the target challenges the jurisdictional predicate in a motion to quash.  As matters presently stand, though, § 1782 applicants in the Southern District of New York should try to include as much jurisdictional detail as they can if seeking discovery from a company that is not incorporated or headquartered in New York.

The attorneys at Castaybert PLLC can assist parties who wish to seek U.S. discovery for use in a foreign proceeding, and those who wish to challenge or respond to a subpoena issued under 28 U.S.C. § 1782.