Bernhard Law Firm has won its challenge to a Section 1782 petition requesting the aid of the United States District Court of the Southern District of Florida to investigate certain alleged owners of a Brazilian energy trading company out of Recife, Brazil. The Court had initially granted the Section 1782 petition ex parte, without the argument or response of Bernhard Law Firm. However, Bernhard Law Firm later appeared and challenged the propriety of the investigation request under the black letter of Section 1782 and the discretionary factors of Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) and progeny. Bernhard Law Firm moved to vacate the order granting Section 1782 aid and quash subpoenas, document requests, and depositions thereunder. This month, the Court granted Bernhard Law Firm’s challenge and motion, vacating the Florida investigation under Section 1782. For more information, read below or see In Re Application of Bio Energias pursuant to 28 U.S.C. Section 1782, case no. 19-mc-24497 (S.D. Fla. Jan. 31, 2020). If you have any questions about Section 1782 applications and petitions for local investigation in aid of international disputes, please contact Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, firstname.lastname@example.org. Read the order, Bernhard Law Firm’s Reply Brief, and news coverage here:
REPLY MEMO OPP (Mr. Barbosa Filho) 12.20.19
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As garnered from the Court’s order, this case involved an underlying dispute in Brazil, in which a Brazilian energy company was the claimant in an arbitration arising from a Recife power trading company’s alleged failure to comply with its obligations under twenty-one Power Purchase Agreements (“PPAs”). On October 30, 2019, the Brazilian energy company filed an ex parte application for judicial assistance pursuant to 28 U.S.C. Section 1782 requesting the issuance of subpoenas directed to Bernhard Law Firm’s client and another alleged owner (together, “Respondents”) seeking documents and information related to the alleged fraudulent transfer of assets to affiliated entities in an effort tofrustrate and circumvent the arbitration in Brazil. In the Section 1782 Application, the applicant represented that allrequirements of 28 U.S.C. Section 1782 had been met and that the discretionary factors also weighed in favor of granting the Application. See id. On November 1, 2019, after considering the information available to it at the time, the Court granted the Application and authorized counsel for the applicant to issue and serve the proposed subpoenas on Bernhard Law Firm’s client. In the Motions, Bernhard Law Firm requested that the Court vacate the order and quash the subpoenas, or in the alternative, sustain their objections to the subpoenas.
1. The Court Reiterated the Legal Standard on Section 1782 Subpoenas
As the Court stated, Section 1782 authorizes, but does not require, federal courts to assist applicants in gathering evidence for use in foreign tribunals. Sergeeva v. Tripleton Int’l Ltd., 834 F.3d 1194, 1198 (11th Cir. 2016). Whether to grant relief under the statute is up to the court’s discretion. Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JASForwarding (USA), Inc., 747 F.3d 1262, 1271 (11th Cir. 2014). A district court may not grant an application under Section 1782 unless four statutory requirements are met: (1) the request must be made “by a foreign or international tribunal” or by “any interested person;” (2) the request must seek evidence, be it the testimony or statement of a person or the production of a document or other thing; (3) the evidence must be “for use in a proceeding in a foreign or international tribunal;” and, finally, (4) the person from whom discovery is sought must reside or be found in the district of the district court ruling on the application for assistance. 28 U.S.C. § 1782(a); see also In re Clerici, 481 F.3d 1324, 1331 (11th Cir.2007). In any event, “a district court’s compliance with a § 1782 request is not mandatory.” United Kingdom v. United States, 238 F.3d 1312, 1319 (11th Cir. 2001).
2. The Court Analyzed Bernhard Law Firm’s Arguments on the Intel Factors for Section 1782 Aid and Investigations
As the Court stated, Bernhard Law Firm argued that the Section 1782 Application should not have been granted because it did not meet the third statutory requirement that the evidence be “for use in a proceeding in a foreign or international tribunal”. Moreover, Bernhard Law Firm contended that the discretionary factors weigh against the Brazilian applicant. Because the Court determined that the discretionary factors were dispositive in this case, the Court only addressed the Intelfactors.
Bernhard Law Firm argued that the Court should vacate the order granting Section 1782 aid in investigation, based upon the discretionary factors set forth by the United States Supreme Court in Intel Corporation v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), which Bernhard Law Firm contended all weighed in favor of disallowing the discovery sought in this case. In addition to considering whether the statutory requirements of Section 1782 are met, the Court must alsoapply the four discretionary factors established by the Supreme Court in Intel. The Intel factors include: (1) whether the respondents are parties in a foreign proceeding; (2) the nature of the foreign tribunal, the character of the proceedings abroad, and the receptivity of the foreign tribunal to assistance from a U.S. federal court; (3) whether the discoveryapplication conceals an attempt to circumvent foreign proof- gathering restrictions or other policies of a foreign country orthe United States; and (4) whether the request is intrusive or burdensome. Id. at 264-65.
3. The Court Agreed with Bernhard Law Firm that the Nature, Character, and Receptivity of the Foreign Proceedings Weighed Against Section 1782 Aid
As the Court stated, Bernhard Law Firm argued that the Section 1782 Application should not have been granted because the Brazilian forum handling the Brazilian dispute was not of sufficient nature, character, and receptivity to a U.S. court’s intrusion. As to this second Intel factor relating to the “nature of the foreign tribunal, the character proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance,” Bernhard Law Firm argued that all signs showed that Brazil and the foreign arbitration forum would not be receptive to assistance by a U.S. federal court, relying on Declarations provided by Keith Rosenn, Alfredo Gomes deSouza Junior, and Renata Martins de Oliveira Amado.
In response, the Brazilian energy company argued that Bernhard Law Firm had not provided authoritative proof that the requested evidence would not be accepted in the Brazilian arbitration, and that in any event, there is no admissibility requirement under Section 1782. Upon review, the Court determined that this factor weighed in favor of Bernhard Law Firm’s client. Here, the Brazilian applicant asserted that it and the Respondents’ company, the parties to the Brazilian arbitration, had agreed to be governed by the IBA Rules, which set out a procedure for the request and production ofdocuments, including requests to third parties. The IBA Rules permit discovery from third parties, but set forth a specific procedure for such discovery. According to Article 3.9 of the IBA Rules:
[i]f a Party wishes to obtain the production of Documents from a person or organization who is not a Partyto the arbitration and from whom the Party cannot obtain the Documents on its own, the Party may, within the time ordered by the Arbitral Tribunal, ask it to take whatever steps are legally available to obtain the requested Documents, or seek leave from the Arbitral Tribunal to take such steps itself. The Party shall submit such request to the Arbitral Tribunal and to the other Parties in writing . . . . The Arbitral Tribunal shall decide on this request and shall take, authorize the requesting Party to take, or order any other Party to take, such steps as the Arbitral Tribunal considers appropriate if, in its discretion, it determines that (i)the Documents would be relevant to the case and material to its outcome, (ii) the requirements of Article 3.3 as applicable, have been satisfied and (iii) none of the reasons for objection set forth in Article 9.2applies.
As such, the Brazilian applicant could have asked the arbitral tribunal to request the documents directly or request to bepermitted to take the steps necessary to request the documents itself. There was no indication from the record that the Brazilian applicant submitted either type of request to the foreign arbitral panel. Thus, it is not evident that the foreignpanel would be receptive to documents obtained in the manner the Brazilian applicant sought to obtain them.
4. The Court Agreed with Bernhard Law Firm that the Section 1782 Application Concealed an Attempt to Circumvent Brazilian Proof-Gathering Restrictions and Policies
As to the third Intel factor, and expressly critical to the Court, “whether the § 1782(a) request conceals an attempt tocircumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States,” the Court found that this factor weighed heavily in favor of Bernhard Law Firm’s client for the same reason the second factor weighed in their favor. Bernhard Law Firm argued that under Brazilian law, only an arbitrator has the right to request evidence under the Brazilian arbitration rules. In response, the Brazilian applicant contended that nothing in the IBA Rules prohibited a litigant from seeking evidence pursuant to Section 1782. However, the Brazilian applicant did not acknowledge or discuss Article 3.9 of the IBA Rules, which requires at the very least that a party put the arbitral panel on notice of its efforts toobtain discovery. Moreover, the IBA Rules empower the arbitral tribunal to order a party to obtain documents or obtainitself any necessary documents.
Here, the Brazilian applicant asserted that it and the company under investigation had agreed to be governed by the IBA Rules in the Brazilian arbitration, yet the Brazilian applicant provided no evidence to show that it has complied with the requirement imposed under Article 3.9 of the IBA Rules before the foreign arbitral panel, or that the arbitral tribunal had requested that it do so. As a result, it was not apparent that the Application was anything less than an attempt to circumvent the arbitral panel in Brazil.
5. The Court Agreed with Bernhard Law Firm that the Section 1782 Application Was Unduly Intrusive and Burdensome
Finally, as to the last Intel factor, whether the request is otherwise “unduly intrusive or burdensome,” the Court found that this factor also weighed in favor of Bernhard Law Firm’s client. Bernhard Law Firm argued that the subpoenas sought essentially every corporate document related to the core Brazilian company or any of its affiliates. In addition, thesubpoenas request privileged financial documents and asset information of the Brazilian respondent, its affiliates, andunrelated third parties. In response, the Brazilian applicant argued that the requests were narrowly tailored to focus on defined activities related to the claims asserted by the Brazilian applicant in the arbitration. However, according to the Application, the arbitration arose out of a failure to comply with obligations under certain PPAs, under which the respondent company was required to sell energy to the Brazilian applicant. While the Brazilian applicant may suspect that Bernhard Law Firm’s client had fraudulently transferred the assets of the Brazilian energy trader to affiliated entities in attempts to frustrate or circumvent the arbitration in Brazil, it was not evident from the materials before the Court that the Brazilian applicant had made that claim in the Brazilian arbitration. As such, the information sought may be relevant to the applicant’s suspicion, but it did not appear to be directly relevant to the claim asserted by the applicant in thearbitration.
In sum, the Court initially granted the ex parte Application without the benefit of Bernhard Law Firm’s arguments. Upon reconsideration, the Court found that the Intel factors, especially the second and third factors, weighed against the Section 1782 investigation and in favor of Bernhard Law Firm’s client in this case. Therefore, the Court elected to not to exercise its broad discretion in permitting the discovery, and found a good basis exists to vacate the order and investigation, and quash the subpoenas.
For more information, see In Re Application of Bio Energias pursuant to 28 U.S.C. Section 1782, case no. 19-mc-24497 (S.D. Fla. Jan. 31, 2020). If you have any questions about Section 1782 applications and petitions for local investigation in aid of international disputes, please contact Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, email@example.com.