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An Unequal Playing Field?

Matthew IngberAmerican courts allow more generous discovery than almost any other judiciary in the world. A recent 7th Circuit decision provides a stark reminder that broad U.S. discovery can be available even when a case is heard in foreign courts, through the procedure established by 28 U.S.C. ? 1782. The silver lining of that decision, to parties that are wary (or weary) of open-ended American-style discovery, is that the court also offered a road map to resisting and perhaps contracting around such discovery requests. The opinion also emphasizes the importance of coordinating the efforts of outside litigators to fight Section 1782 requests both in the American court and in the forum in which the litigation is pending.

Section 1782 allows federal district courts to order the production of documents, for use in a foreign proceeding, from anyone (whether or not a party) who is subject to the court's jurisdiction. The statute allows litigants to apply directly to the district court, without the need for the usually time-consuming process of letters rogatory. Unless the U.S. court orders otherwise, discovery is governed by the federal rules, which usually will allow far broader discovery than would be available in the foreign court.

This option makes the benefits of the U.S. system available to litigants worldwide, while also creating opportunities for mischief, especially when only one party is subject to jurisdiction here. The 7th Circuit tried to balance those considerations in its decision last month in Heraeus Kulzer v. Biomet. Heraeus, a German company, sued Indiana-based Biomet in German court for the theft of trade secrets. It then sought discovery in the United States under Section 1782. The district court denied the application, finding that the requests affronted the German courts because they exceeded what the German system would permit. The district court also found Heraeus's requests overbroad under the Federal Rules.

The 7th Circuit reversed. Judge Posner's decision emphasized that the statute was intended precisely to allow broad, U.S.-style discovery, to set "an example to encourage foreign countries to enlarge discovery rights in their own systems." (This effort has been largely unsuccessful, as most other countries show little interest in moving toward the American discovery system.) The court ruled that once a foreign litigant shows a need for U.S. discovery, the burden shifts to the other party to show that the discovery is inappropriate. As with any other discovery request, moreover, overbreadth is not fatal; the district court must consider whether the request can be limited before rejecting it outright.

Perhaps the most worrisome aspect of the 7th Circuit's decision for companies subject to jurisdiction in the U.S. is its lack of concern about asymmetry--Heraeus can receive U.S.-style discovery against its American opponent, while Biomet is limited to discovery under the German rules. This result seems especially inappropriate because it was Heraeus that chose the German forum in the first place.

Nonetheless, the 7th Circuit recognized several possible Section 1782 abuses that it would refuse to countenance. Section 1782 discovery should not be available, the court observed, if the request is harassing, such as by seeking documents that could be obtained directly in the foreign court or that will be inadmissible in the foreign hearing. A court also may deny a request that would flood the foreign court (which may operate under few or no evidence rules, as is common in non-jury systems).

Judge Posner's third potential abuse covers requests that "the foreign court would disapprove of" because it would impose excessive expense on the recipient. He also noted that forum selection clauses might indicate a preference for a court system that does not allow for broad discovery. It is not clear whether a standard clause would do the trick; American parties (and their in-house counsel) that agree to litigate overseas should consider adding recitals or expanding the forum selection language to refer specifically to discovery.

Finally, the court acknowledged that a lack of reciprocity might be relevant if it gives one side an "arbitrary advantage." But because it believed that, in this case, the plaintiff probably needed more discovery than the defendant, this concern did not arise.

In finding that none of these abuses were implicated here, the court also reinforced the importance of seeking rulings from the foreign court about the U.S. discovery. For example, it found it meaningful that Biomet had not asked the German court to correct any misuse of the Section 1782 procedure, and it also faulted Biomet for not asking the U.S. court to condition discovery on Heraeus's consent to reciprocal treatment.

In short, under Heraeus, Section 1782 remains a powerful tool for foreign litigants and a potential pitfall for U.S. companies sued abroad. Counsel should keep it in mind not only during a foreign litigation but also when choosing a forum, either by contract or by commencing a case, and when considering jurisdictional and forum non conveniens motions. What seems obvious from Heraeus is that moving the case out of the United States does not necessarily mean that U.S. discovery rules will not apply.

Read Matthew Ingber's previous column. Read Matthew Ingber's next column.

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Matthew Ingber

Matthew Ingber is a litigation partner at Mayer Brown.

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