Banks, financial institutions, and other companies in New York should take notice of a recent Second Circuit decision that empowers a district court to compel a New York-based entity to procure documents from foreign affiliates and subsidiaries for document production in federal cases. Title 28 U.S.C. § 1782 is frequently called "the enabling statute," as it authorizes federal courts to order production of documents and testimony in the United States for use in a foreign legal or arbitral proceeding. It is a powerful device: Section 1782 permits parties to a foreign action or arbitration to bring an application in federal court to compel production of documents in the United States for use abroad. This seems simple enough, but the rule has changed in a manner that will strike the banking and financial community with particular vengeance. In In re del Valle Ruiz, 939 F.3d 520 (2d Cir. 2019), the Second Circuit held that section 1782 may have extraterritorial application. This shift may require that a New York company contact a foreign affiliate entity to gather documents from abroad for production in New York.
In this decision, which has received little notice but will have sweeping consequences, Santander Investment Securities, located in New York and under the jurisdiction of the Southern District, was compelled to reach out to a Spanish affiliate for production of documents from Spain for use in a foreign arbitral tribunal. The changes wrought by In re del Valle Ruiz are glaring. Until the Supreme Court takes up the question of whether section 1782 should be interpreted as having an extraterritorial application, U.S. financial institutions must be mindful that they can now be compelled by a federal district court under certain circumstances to reach out to foreign affiliates for assistance with a U.S. document production. No doubt, that is an awkward and unpleasant phone call to make to a corporate colleague abroad. Until the Supreme Court decides the issue, financial institutions should be hyper-disciplined on corporate governance and corporate separateness enforcement. In-house attorneys should keep a sharp eye on structural walls between parent and subsidiary entities, particularly across national borders. If counsel can competently attest to a court that the New York entity does not have "possession, custody or control" over foreign documents, that defense might insulate against the obligation to retrieve documents from abroad.