Tagging Corporate Directors for Discovery under Section 1782
June 7, 2023
Section 1782 authorizes federal district courts to order any person who “resides or is found in” the judicial district to provide discovery “for use in a proceeding in a foreign or international tribunal.” The Second Circuit has held that “that § 1782’s ‘resides or is found’ language extends to the limits of personal jurisdiction consistent with due process.” So, how does tag jurisdiction relate to § 1782? Could a person seeking discovery for use in a foreign or international tribunal serve a corporate officer or director with process while he is temporarily present in the judicial district and then seek discovery under § 1782 of documents that this person controls?
That was the situation in In re Fourworld Event Opportunities Fund, where the petitioner sought discovery from a member of the supervisory board of a German company for use in litigation against its Swedish subsidiary. In an oral decision, the U.S. District Court for the Southern District of New York (Katherine Polk Failla) exercised her discretion to quash the subpoenas under the factors articulated by the U.S. Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc. (2004). Although the respondent did not challenge the district court’s jurisdiction over him, the court also considered the petitioner’s “extreme” use of tag jurisdiction as one reason to deny discovery.
The use of tag jurisdiction in combination with § 1782 is not new. The Second Circuit approved it more than 20 years ago in In re Edelman (2002). But its use is still striking. It is worth recalling that tag jurisdiction could not be used to establish personal jurisdiction over the corporation whose documents were sought. Because Judge Failla gave her decision orally, it does not appear on Westlaw and is likely to be overlooked. In my view, the decision is significant not only because it presents a recent § 1782 case using tag jurisdiction, but also because it shows how district courts may push back.
The Facts
The petitioner Fourworld Event Opportunities Fund is an investment fund that held a minority stake in Hembla AB, a Swedish real estate company. In September 2019, the German company Vonovia SE announced that it had agreed to acquire all the Blackstone Group’s shares in Hembla through Vonovia’s Swedish subsidiary Homestar Investco AB, with the result that Homestar would own 61% of Hembla’s share capital. As required by Swedish law, Homestar announced a tender offer to acquire the shares of Hembla’s other public stockholders, through which it acquired more than 90% of Hembla. Homestar then requested the compulsory redemption of Hembla’s remaining shares, including those owned by Fourworld.
Fourworld alleged that the listed value of Hembla’s shares did not represent their true value and that Fourworld was entitled to more than Homestar paid for them. Fourworld initiated an arbitration under Sweden’s Companies Act, but the arbitral tribunal found that there was no reason to deviate from the listed value in this case. Fourworld then sought de novo review of the arbitral decision in Stockholm District Court.
In the petition before Judge Failla, Fourworld sought subpoenas to depose a member of Vonovia’s supervisory board, Christian Ulbrich, and for him to produce a broad range of documents concerning the transaction with Blackstone and the valuation of Hembla. The documents sought were outside the United States, but the Second Circuit has held that a district court may order a person who resides or is found in its district to produce information over which he has control even if that information is located abroad. Fourworld expected Ulbrich to travel to New York soon and asked Judge Failla to authorize subpoenas under seal to be served on Ulbrich once he arrived. Judge Failla granted the petition.
The Motion to Quash
After being served with the subpoenas, Ulbrich moved to quash. Fourworld’s original petition was ex parte, as is common in § 1782 cases, which means that the district court heard arguments only from the petitioner. After hearing what the other side had to say, Judge Failla changed her mind and decided to quash the subpoena.
Statutory Factors
In § 1782 cases, courts typically look first to see if the three required statutory factors drawn from the text of the statute are satisfied: (1) that the person from whom discovery is sought resides or is found in the district; (2) that the discovery is for use in a proceeding before a foreign or international tribunal; and (3) that the person seeking discovery is an “interested person.”
In Fourworld, there was no dispute that the petitioner Fourworld, as a party to the foreign proceeding, was an “interested person.” Ulbrich argued, however, that the discovery was not “for use” in the foreign proceeding because the issue before the Stockholm District Court—whether there are special reasons to depart from the listed price rule—is narrow, whereas Fourworld’s discovery request was broad. The U.S. district court noted that the “for use” factor requires “only a de minimis showing that the information sought would be relevant to the foreign proceeding.” The Stockholm court’s review of the challenged arbitral decision was de novo, and Fourworld had made a threshold showing that it could use the discovery to argue its case to the Stockholm court.
Ulbrich did not argue that he was not “found in” the SDNY, even though he came to New York in his personal capacity and personal jurisdiction was founded solely on service of process while he was temporarily present in the forum. Respondent was correct to do so. As noted above, the Second Circuit has held that § 1782’s “resides or is found” language extends to the limits of due process. Tag jurisdiction—service of process on a person temporarily present—remains a valid basis for personal jurisdiction. And the Second Circuit has specifically approved of the use of tag jurisdiction in combination with § 1782. There was no way Ulbrich would win an argument that he was not “found in” the SDNY.
Discretionary Factors
If all the statutory factors are satisfied, courts typically consider the four factors that the Supreme Court articulated in Intel to guide a district court’s discretion under § 1782: (1) whether the person from whom discovery is sought is a participant in the foreign proceeding, in which case the foreign court could order discovery itself; (2) the receptivity of the foreign court to U.S. judicial assistance; (3) whether the discovery request seeks to circumvent foreign restrictions on discovery; and (4) whether the request is unduly intrusive or burdensome.
In Fourworld, the first factor cut against petitioner. Although Ulbrich himself was not a party to the Stockholm proceeding, he was also not the real target of the discovery. The fundamental question under the first factor, Judge Failla observed, was “to determine whether the evidence and real target of the relevant discovery is within the jurisdictional reach of the foreign tribunal.” In this case, Homestar was a party to the Stockholm proceeding. In fact, Fourworld had made a similar discovery request to the Stockholm court, though that court had not yet ruled on the request.
Judge Failla found that the second factor favored Fourworld because Ulbrich had not shown that the Stockholm court would be unreceptive to the discovery. But, turning to the third factor, she found that the discovery request was an attempt to circumvent foreign restrictions on discovery. Ulbrich argued that the Stockholm District Court was likely to reject Fourworld’s discovery request and that “the petitioner is seeking to preempt an adverse ruling.” “[T]he bulk of the requested discovery here is within the reach of the Stockholm District Court,” Judge Failla reasoned, “and that court will imminently decide whether to order such discovery. At best, ordering discovery here would be cumulative of discovery the Stockholm District Court could order. At worst, this decision would directly contradict the Stockholm District Court’s own resolution of the parties’ discovery disputes.”
Finally, applying the fourth factor, Judge Failla found that the discovery request was unduly burdensome. She noted that the discovery requested under § 1782 was broader than the discovery sought from the Stockholm court and that “petitioner has not specifically argued that any of the discovery that is sought from this Court above and beyond that sought from the Stockholm District Court is necessary to argue its claims in the Stockholm District Court.” Judge Failla found that confidentiality limitations under German law and the restrictions of the EU’s General Data Privacy Regulation (GDPR) compounded the burden on respondent.
In considering the burden on the respondent, Judge Failla also noted that “the petitioner’s application has stretched the bounds of tag jurisdiction to an extreme.”
In sum, petitioner seeks broad discovery from, number one, a parent corporation for which respondent merely serves as a board member, and number two, that parent’s subsidiaries, all because respondent, in his personal capacity, traveled through this district. All of the relevant discovery is located in either Sweden or Germany and would be in respondent’s possession not by dint of his status as an individual, but instead because of his relation to corporate entities related to the underlying action.
“[C]ertainly,” she concluded, “these facts bear on the Court’s analysis and impose yet another burden on respondent.”
Based on the discretionary factors, Judge Failla vacated her earlier decision and quashed the subpoena.
Conclusion
Although tag jurisdiction is a valid basis for personal jurisdiction in § 1782 cases, its use in this case clearly rubbed Judge Failla the wrong way. Fourworld had already requested the discovery it wanted from the Stockholm court, which was in a better position to decide on the appropriateness of the request. Seeking the same (or even broader) discovery from a board member of a parent company seemed like an end run around the Stockholm court, as well as a burden on the board member.
It was also not clear in this case whether the board member, under German or Swedish law, would be able to obtain the documents sought. Similar questions are likely to arise in other cases where a petitioner seeks discovery of corporate documents not from the corporation itself but from one of its directors or officers. Judge Failla chose to exercise her discretion to quash rather than wade into these questions of foreign law.
The more fundamental problem in this case, however, is that Judge Failla initially granted the petition ex parte and under seal, presumably to preserve the element of surprise and make it easier for petitioner to serve the respondent. As I have noted previously, however, and has Andrea Wang has argued in detail, granting such petitions ex parte biases a court’s decisions by allowing it to hear the arguments on only one side. As theFourworld case shows, hearing both sides can lead to a different decision.
It seems to me that, as a general matter, U.S. district courts should not grant § 1782 petitions without hearing from the respondent (here, Mr. Ulbrich) and/or the real party in interest (here, Homestar). Taking this approach might make it more difficult to use tag jurisdiction in § 1782 cases because respondents might change their plans to avoid service. But discouraging the use of tag jurisdiction in these cases might, in fact, be a good thing.