BNY Mellon Defeats Pretextual Application for Discovery Under Section 1782

December 21, 2018

Cleary Gottlieb represented The Bank of New York Mellon (BNY Mellon) in obtaining a complete denial of an application seeking discovery purportedly for use in a foreign proceeding under 28 U.S.C. § 1782.

The application was filed on October 31, 2018, by Postalis, a pension plan for Brazilian postal workers, which has brought multiple actions in Brazil against indirect subsidiaries of BNY Mellon, alleging fraud and mismanagement in connection with Postalis's investments. BNY Mellon is not a party to any of the Brazilian proceedings, and there are no allegations that BNY Mellon played any role in the alleged fraud. Nonetheless, Postalis claimed that it needed the requested discovery – including information regarding the administration and management of the funds, relevant investment decisions, and any investigation conducted by BNY Mellon – to use in the Brazilian proceedings.

Cleary argued that Postalis had not met its burden to show that the discovery was actually “for use” in the Brazilian proceedings, but rather was an attempt to gain pre-litigation discovery for a prospective lawsuit in the United States against BNY Mellon. Cleary also argued that various discretionary factors further counseled against the court granting the application, because Postalis' fishing expedition was an attempt “to circumvent the laws and policies of the United States embodied in the Federal Rules of Civil Procedure” and because the requested discovery would be unduly burdensome and intrusive for BNY Mellon.

After expedited briefing and oral argument in the Southern District of New York, Judge John Koeltl agreed with Cleary's arguments and denied the petition in its entirety. Judge Koeltl wrote, “Seeking discovery under section 1782 for an improper purpose, namely for pre-litigation discovery otherwise not permitted under the Federal Rules of Civil Procedure, is bad faith just as a harassing application is in bad faith.” Judge Koeltl also rejected Postalis' argument that the court should narrow the subpoena or issue a protective order, finding that “a protective order is not an effective remedy for an overbroad discovery request that is searching for whether to bring a lawsuit in the United States.”

The opinion clarified the limits of when discovery is available under Section 1782, and it should be useful for other corporations confronted with overbroad requests for discovery that it has reason to believe are mere pretext to obtain pre-complaint discovery for use in prospective domestic litigation.