Section 1782’s (Potential) Boomerang Effect
As we discussed in a previous post, under 28 U.S.C. section 1782, a party to litigation in a foreign (non-U.S.) country can seek discovery for use in that litigation in a U.S. federal district court. This authority is conditioned on the following: (1) the person from whom discovery is sought resides in the district of the court to which the application is made; (2) the discovery is for use in a proceeding before a foreign tribunal; and (3) the application is made by a foreign or international tribunal or any interested person.
Complying with the statutory requirements does not automatically ensure a favorable decision. Prior to granting a 1782 application, a federal court will also consider several discretionary factors, enumerated by the Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 264–65, (2004). Again, see our previous post.
In this post we discuss the following question: can the party from whom discovery is sought (let’s call him/her the “respondent”) also demand that the applicant produce documents or undergo a deposition? Put differently, is discovery under section 1782 reciprocal?
In Intel Corp., the Supreme Court stated that a federal district court can “condition relief upon” the “reciprocal exchange of information.” This means that a 1782 proceeding has the potential to become a double-edged sword. A 1782 applicant needs to be advised that seeking discovery in the U.S. from a non-party may result in that same non-party “hitching a ride” on the proceeding and getting documents or other information from the applicant that he/she would otherwise not be entitled to receive. See, for example, Application of Consorcio Minero, S.A. v. Renco Grp., 2012 WL 1059916 (S.D.N.Y. March 29, 2012) (district court found reciprocal discovery appropriate because the applicant had a substantial interest in the relevant actions).
If that happens, the 1782 applicant will find himself under a court order to produce documents and information. Depending on the circumstances, that can have significant consequences, including expenses. As the title indicates, the 1782 proceeding can behave somewhat like a boomerang. Some applicants/clients wouldn’t care if the boomerang returned to them; some would.
Nevertheless, the respondent will have to put up a good fight and convince the court that reciprocal discovery is appropriate. Federal district courts have broad discretion when they grant discovery under section 1782. A recent case handed down by the Second Circuit serves as a good example. In Sampedro v. Silver Point Capital, L.P., 2020 WL 2988693 (2d Cir. June 4, 2020), the United States Court of Appeals for the Second Circuit affirmed a district court’s ruling in a 1782 proceeding that denied the respondents’ request for reciprocal discovery. The background of the case was as follows: The 1782 applicant (Sampedro) filed a lawsuit against his form employer in Spain (the “Spanish Lawsuit”). Almost at the same time, Sampedro commenced arbitration proceedings against the employer and other named defendants (e.g. board members of the Spanish employer) (the “Arbitration Proceeding”). Soon thereafter, Sampedro commenced a 1782 proceeding against those other named defendants (the respondents). Importantly, the 1782 proceeding was based on the Spanish Lawsuit in which the respondents were NOT parties (they were only parties to the Arbitration Proceeding). As you may have already guessed, the respondents requested that they also are allowed to collect evidence from Sampedro, i.e. make the 1782 discovery proceeding reciprocal. The district court allowed Sampedro to collect evidence from the respondents but did not allow the respondents to collect evidence from Sampedro. Respondents appealed and the Second Circuit affirmed.
What can be learned from all this? First, as the Second Circuit pointed out, there is no “bright-line rule” regarding reciprocal discovery. Second, despite the lack of a standard rule, here are some factors a court may consider when ruling on a 1782 reciprocal request:
1. Would the respondent be able to use the discovery in the foreign proceeding? If the answer is “yes,” a court may be more inclined to grant the request. That said, in the Sampedro case, the Second Circuit seemed to imply that even if the respondents would be able to use the evidence in the Spanish Lawsuit, “that does not compel the conclusion that they would be entitled to reciprocal discovery here.”
2. Can the respondent initiate its own 1782 application? If the answer is “yes,” a court may be more inclined to deny the request for reciprocity and instruct the respondent to file an independent 1782 application. See, Application of Consorcio Minero, supra (“Renco cannot initiate its own Section 1782 action against Cormin because Cormin is a Peruvian company and not found in any district in the United States. This favors granting a condition of reciprocal discovery”).
All said and done, whichever way the district court elects to employ its broad 1782 discretion, unless there is a clear abuse of that discretion, an appeal is likely to be futile. The lesson to be learned is simple: an applicant should be advised that commencing a 1782 action may result in opening the door to discovery demands from the very individuals or entities from whom discovery is sought, just like a boomerang may return to very person who threw it in the first place.