28 U.S.C. § 1782 allows requests for US discovery in aid of a foreign proceeding. In the latest case to address the scope of that section, Judge Edgardo Ramos of the Southern District of New York (SDNY) partially denied an application for discovery from Banco Santander for lack of personal jurisdiction. While Santander maintains branches and offices, holds executive meetings and otherwise conducts business in New York City, it is not "found" there for the purposes of § 1782, the court concluded, because it lacked requisite contacts with the forum to satisfy due process. The ruling raises fundamental questions as to where—and even whether—§ 1782 discovery can be obtained from many foreign entities.
Background
In re Application of Antonio del Valle Ruiz., 18 Misc. 85 (S.D.N.Y.) (ER) stems from the fall of Banco Popular Español, S.A., the sixth-largest bank in Spain. In 2017, Spanish bank regulators invited several banks to bid on the failing Banco Popular—a government-directed process to force the sale of troubled banking assets known as a "resolution." The sole bidder was Santander, which purchased the bank for €1.
The petitioners are former investors in Banco Popular that claim to have lost over one billion euros as a result of the forced sale. They commenced a series of legal actions, including (1) proceedings before the General Court of the Court of Justice of the European Union against the government agencies responsible for the resolution, (2) arbitration against the Spanish government pursuant to the Mexico-Spain Bilateral Investment Treaty and (3) writs with the Spanish Central Criminal Court to join Spanish criminal proceedings against Banco Popular and its former management personnel. They did not pursue claims against Santander. They did, however, file an application in the SDNY in 2018 seeking § 1782 discovery from Santander and several affiliates for use in those foreign proceedings.
"Resides or Is Found" Standard
Section 1782 allows discovery from a party that either "resides" or "is found" in the district where the application is made. While the statute itself does not define these terms, courts have held consistently that an order compelling § 1782 discovery must comport with due process. It follows, Judge Ramos reasoned, that courts should apply the same analysis under § 1782 as when determining whether personal jurisdiction exists.
Santander Is Not Subject to Personal Jurisdiction
The court noted that Santander, inter alia, (1) maintains branches in New York City and is regulated by the New York Department of Financial Services, (2) manages wholly-owned US subsidiaries from New York City, (3) is the ninth-largest banking group in the New York area, (4) is listed on the New York Stock Exchange, (5) holds executive meetings in New York, (6) has designated its New York City branch as a process agent, and (7) has admitted, in SDNY filings in other actions, to maintaining offices and conducting business in the district—but found that these contacts are insufficient to establish personal jurisdiction.
First, general jurisdiction is absent because Santander is neither incorporated nor headquartered in New York. Citing the Second Circuit's decision in Gucci Am., Inc. v. Li, 768F.3d 134 (2d Cir. 2014), the court recognized that simply maintaining a branch in New York is insufficient to sustain general jurisdiction. Nor did Santander's other business activities render it "essentially at home" in New York.
The court was unpersuaded by the handful of district court cases cited by the petitioners in which corporate entities were held to be "found" in the district under § 1782 (one even involving Santander) because, in those cases, the adjudicating courts were never asked to decide whether the target of the § 1782 discovery request was subject to personal jurisdiction.
Second, the court determined that Santander is not subject to specific personal jurisdiction either. The petitioners had argued that some of Santander's New York activities related directly to the Banco Popular resolution that was the subject of the foreign proceedings. They cited meetings between Santander executives and investors in New York City shortly after the resolution, letters to the SEC requesting relief from certain reporting requirements and the retention of New York investment banks to explore financing options for the integration of the newly acquired operations. The court found these contacts insufficient because they all took place after the challenged resolution. The foreign litigation thus could not be said to "arise out of" those contacts.1
Because neither general nor specific jurisdiction existed over Santander, the petitioners' application was denied. They have appealed to the Second Circuit.
Implications
The Ruiz decision highlights some of the uncertainties associated with § 1782 discovery. Many § 1782 orders are issued ex parte. As illustrated by Judge Ramos's discussion of other § 1782 decisions, uncontested applications can lead to courts authoring the issuance of § 1782 discovery without fully considering the presence (or absence) of personal jurisdiction. Ruiz and decisions like it may give courts pause when asked to issue ex parte orders or cause them to begin considering jurisdictional issues sua sponte. It also illustrates a strong basis on which to resist § 1782 applications, and it provides an incentive to do so.
Ruiz also raises interesting questions about whether a § 1782 application can even be made for discovery from certain third-party foreign entities. Foreign banks and companies seldom are subject to general jurisdiction in the United States (with exceptions involving how such entities are structured). As for specific jurisdiction, the Ruiz court believed that the foreign proceeding, rather than the US discovery request, needed to arise out of the target's US contacts. That standard—which requires a showing that a foreign case against a defendant that "arises out of" US contacts by a different party—will be difficult to meet in many cases. Assuming that specific jurisdiction cannot be established over foreign entities, are they essentially immune from § 1782 discovery requests? If so, and Ruiz suggests just that, the very raison d'être of § 1782—providing assistance to foreign and international tribunals and to litigants before such tribunals— would appear to be severely compromised.
The Second Circuit will undoubtedly clarify this issue as the Ruiz appeal moves forward. For now, any entity that is not subject to general jurisdiction should carefully consider its rights in assessing the appropriate response to § 1782 discovery requests.
Footnote
1 The court granted the petitioners' separate request for discovery from Santander Investment Securities Inc. (SIS), an affiliate headquartered in New York City. The court found that SIS was subject to general jurisdiction because, unlike the bank, it was headquartered in New York (and § 1782's other statutory requirements were met).
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