Circuit Split Complicates US Discovery in Foreign Tribunals

Litigants in foreign tribunals may obtain discovery in U.S. courts, applying under Title 28 of the U.S. Code, Section 1782, which says that when petitions for such discovery are made, "the district court of the district in which a person resides or is found may order … discovery for use in a proceeding in a foreign or international tribunal."

For a person or corporation to reside in a district, they must maintain a dwelling in the district permanently or continuously. Easy enough. However, determining if a person or corporation can be found in a district is much more difficult. Indeed, courts have struggled mightily in deciding whether a corporation is or can be found within a district under Title 28 of the U.S. Code, Section 1782.

In the 2019 In re: del Valle Ruiz decision, the U.S. Court of Appeals for the Second Circuit made its attempt at construing the term "found" for purposes of Section 1782.[1] According to the Second Circuit, a person can be found in a judicial district under Section 1782 to the extent of "personal jurisdiction consistent with due process."[2]

This definition, the court reasoned, includes territorial jurisdiction, more commonly known as tag jurisdiction.[3] This suggests that:

Jurisdiction based on physical presence alone constitutes due process because it is one of the continuing traditions of our legal system that define the due process standard of "traditional notions of fair play and substantial justice."[4]

The U.S. Court of Appeals for the Fourth Circuit, however, seems to be in tension with the Second Circuit's ruling. In a 2022 decision in In re: Eli Lilly & Co.,[5] the Fourth Circuit determined that a corporation is found in a judicial district when it is "physically present by its officers and agents carrying on the corporation's business."[6]

In doing so, the Fourth Circuit diverged from the Second Circuit's interpretation of what it means to be found for purposes of Section 1782.[7]

Although the differing opinions of the Second and Fourth Circuits may appear superficial — after all, in both the Second Circuit and Fourth Circuit's interpretation, a physical presence in the district suffices to establish being found in the district for purposes of Section 1782 — looking at the type of physical presence that satisfies these competing interpretations shows a substantial difference.

For the Second Circuit, a single instance of physical presence by the respondent in the district may satisfy the physical presence requirements of tag jurisdiction.[8]

In contrast, the Fourth Circuit's requirement that a corporation be "physically present by its officers and agents carrying on the corporation's business" results in a corporation's presence being treated differently than an individual person's physical presence.

A single instance of one employee being physically present would not satisfy the physical presence requirement for a corporation for a Section 1782 application in the Fourth Circuit, while it would in the Second Circuit.

Thus, when approaching Section 1782 applications, it is necessary for practitioners to understand how the courts in the district and circuit reached the meaning of "found."

In reaching its decision to not follow the Second Circuit's interpretation of "found," the Fourth Circuit undertook de novo review and engaged in a typical statutory interpretation exercise.

In particular, the Fourth Circuit noted that its interpretation in the case of corporate entities required a nuanced view, because corporate litigants face procedural problems that are "enmeshed in the wider intricacies touching the status of a corporation in our law."[9]

As a result, the Fourth Circuit examined the plain and ordinary meaning of the term "found" at the time the legislation was enacted, finding that the definition at the time included "doing business in such state through an officer or agent or by statutory authority," such that the corporation would "render it liable then to suit and to constructive or substituted service of process."[10]

The Fourth Circuit continued its reasoning by finding that U.S. Supreme Court precedent prior to the enactment of Section 1782 supported a similar definition. In particular, the court found that the Supreme Court supported its interpretation of the word "found" in the Sherman Act[11] and the Clayton Act.[12]

As a result, for a corporation to be found under Section 1782, its officers and agents must be physically present in the district.

In contrast, the Second Circuit chose a different approach. In the del Valle Ruiz decision, the court was presented with two competing arguments about the bounds of the interpretation of the found requirement of Section 1782.

In that case, the applicant sought documents from Santander Holdings USA Inc. and Santander Bank NA that would address its liquidity in a government-forced sale. To argue against the Section 1782 application, Santander argued it could not be found in the U.S. District Court for the Southern District of New York, where the case originated.

According to Santander's reasoning, the found requirement of Section 1782 requires a person or entity to be subject to general personal jurisdiction in that district, citing the 2002 decision in In re: Edelman, the Second Circuit's only case addressing the found requirement of Section 1782. But, the circuit court disagreed, and it concluded that found included the limits of personal jurisdiction consistent with due process.[13]

The Second Circuit reasoned that it is well-settled case law that establishes what it means to be found in a particular locale — that is, "on territorial jurisdiction,' i.e., tag jurisdiction."[14]

Because this principle was seemingly well-understood to be within the confines of adequate due process, it must be consistent with the statutory interpretation of this term, thereby rejecting Santander's argument — i.e., for general personal jurisdiction.

Santander also attempted to support its position through the legislative history of Section 1782 and further supported its position from academic commentator Hans Smit, who played a role in the statute's drafting and argued that to be found in a district requires presence in the district.

Instead of following that reasoning, the Second Circuit reasoned that Congress intended this statute, which was enacted "simply as a discovery mechanism and does not subject a person to liability," to be interpreted broadly, to include anyone reached under personal jurisdiction consistent with due process.

And, reaching even further, the Second Circuit went on to conclude that discovery of materials contained overseas can be subject to a Section 1782 application, so finding that, despite the canon of statutory construction known as the presumption against extraterritoriality:

The location of responsive documents and electronically stored information — to the extent a physical location can be discerned in this digital age — does not establish a per se bar to discovery under Section 1782.[15]

These competing interpretations of Title 28 of the U.S. Code, Section 1782, among the Second and Fourth Circuits lead to confusing options for potential applicants and respondents to a Section 1782 application.

This is particularly true for foreign-based respondents and corporations, who will be forced to interpret these applications not based on any settled law, but rather where the application is filed.

International corporations approaching Section 1782 application often find themselves fighting litigation battles in multiple venues in multiple domestic and foreign tribunals, and a major issue of concern is the predictability of how courts will direct decisions in those litigations.

And, domestic entities approaching Section 1782 application will have to remain wary that not only may they be compelled to provide discovery to foreign tribunals through the U.S. courts, but may be forced to think of these discovery requests globally, rather than contained to domestic corporations that may be found in multiple districts.

Indeed, allowing foreign corporations to be reached in a given venue for foreign discovery because it maintains any sort of presence in that district makes large corporations potentially reachable in any venue to avail foreign opponents to the relatively broad rules of discovery available in U.S. courts.

A corporate litigant considering the use of Section 1782 applications for discovery in a foreign tribunal must consider several important takeaways.

First, a company may be incorporated in one district but have offices in one or more additional districts that would lead to the corporation — or its discovery target — being found in the district for purposes of Section 1782.

This makes a corporate litigant's decision about where to file their Section 1782 application critical, but leaves open that a litigation opponent may be eligible for multiple districts.

Whether it is the Second Circuit, Fourth Circuit or another venue, the key decision rests on where the opponent maintains a physical presence in the district to be found.

Endnotes

[1] In re del Valle Ruiz, 939 F.3d 520 (2nd Cir. 2019).

[2] Id., at 527.

[3] Id.

[4] Burnham v. Superior Court of California, County of Marin, 495 U.S. 604, 110 S.Ct. 2105, 109 L.Ed.2d 631 (1990).

[5] In re Eli Lilly & Co., 37 F.4th 160 (4th Cir. 2022).

[6] Id., at 165.

[7] The applicant in In re Eli Lilly & Co. attempted to argue for this definition, and the Fourth Circuit reached a second, differing interpretation.

[8] For instance, in Burnham the Supreme Court found tag jurisdiction to be satisfied by a divorcee who traveled to the forum intermittently being served divorce papers while in that district.

[9] Citing Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 168, 60 S.Ct. 153, 84 L.Ed. 167 (1939).

[10] Citing Black's Law Dictionary (4th ed. 1951), Black's Law Dictionary (3rd ed. 1933), and Black's Law Dictionary (4th rev. ed. 1968).

[11] People's Tobacco Co. v. American Tobacco Co., 246 U.S. 79, 38 S.Ct. 233, 62 L.Ed. 587 (1918).

[12] Eastman Kodak Co. of New York v. Southern Photo Materials Co., 273 U.S. 359, 47 S.Ct. 400, 71 L.Ed. 684 (1927).

[13] In re del Valle Ruiz, 939 F.3d at 527.

[14] Id.

[15] Id. at 533.