In Re: App for an Order v. ( 2021 )

United States Court of Appeals
For the First Circuit
No. 20-1239
IN RE: EX PARTE APPLICATION OF PORSCHE AUTOMOBIL HOLDING SE FOR
AN ORDER PURSUANT TO 28 U.S.C. § 1782 GRANTING LEAVE TO OBTAIN
DISCOVERY FOR USE IN FOREIGN PROCEEDINGS
PORSCHE AUTOMOBIL HOLDING SE,
Petitioner, Appellee,
v.
JOHN HANCOCK LIFE INSURANCE COMPANY (USA); JOHN HANCOCK
ADVISERS, LLC; JOHN HANCOCK INVESTMENT MANAGEMENT SERVICES, LLC,
Respondents, Appellants,
FPCAP LLC; FINEPOINT CAPITAL LP; FINEPOINT PARTNERS LLC,
Respondents.
_____________________
No. 20-1241
IN RE: EX PARTE APPLICATION OF PORSCHE AUTOMOBIL HOLDING SE FOR
AN ORDER PURSUANT TO 28 U.S.C. § 1782 GRANTING LEAVE TO OBTAIN
DISCOVERY FOR USE IN FOREIGN PROCEEDINGS
PORSCHE AUTOMOBIL HOLDING SE,
Petitioner, Appellee,
v.
FINEPOINT CAPITAL LP; FINEPOINT PARTNERS LLC; FPCAP LLC;
JOHN HANCOCK LIFE INSURANCE COMPANY (USA);
JOHN HANCOCK ADVISERS, LLC;
JOHN HANCOCK INVESTMENT MANAGEMENT SERVICES, LLC,
Respondents,
JOHN HANCOCK WORLDWIDE INVESTORS PLC; CRAIG BROMLEY, as Trustee
for John Hancock Variable Insurance Trust,
John Hancock Funds II, John Hancock Funds III, and
John Hancock Strategic Series for JHF Income Fund,
Interested Parties, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. District Judge]
Before
Lynch, Thompson, and Kayatta,
Circuit Judges.
Olav A. Haazen, Alice Y. Lee, and Grant & Eisenhofer P.A., on
brief for appellants John Hancock Life Insurance Company (USA);
John Hancock Advisers, LLC; John Hancock Investment Management
Services, LLC; and for interested parties John Hancock Worldwide
Investors PLC; and Craig Bromley, as trustee for John Hancock
Variable Insurance Trust, John Hancock Funds II, John Hancock
Funds III, and John Hancock Strategic Series for JHF Income Fund.
Suhana S. Han, Robert J. Giuffra, Jr., and Sullivan &
Cromwell LLP, and Nolan J. Mitchell and Nelson Mullins Riley &
Scarborough LLP on brief for appellee Porsche Automobil
Holding SE.
January 15, 2021
KAYATTA, Circuit Judge. These appeals require that we
consider challenges to a district court's discretionary rulings in
connection with a request under 28 U.S.C. § 1782 to conduct court-
ordered discovery for use in a foreign proceeding. The foreign
proceeding is one of approximately 200 separate securities fraud
actions brought against Porsche Automobil Holding SE ("Porsche")
in Germany in 2016 (the "German Actions"). The German Actions
arose out of Porsche's alleged malfeasance in connection with so-
called "defeat devices" employed to circumvent emissions testing
in certain diesel vehicles manufactured by Volkswagen AG. In this
stateside litigation, the district court granted in part Porsche's
request for discovery in the United States from affiliates ("the
Hancock Affiliates") of three John Hancock funds who are plaintiffs
in the German Actions ("the Hancock Plaintiffs"). This appeal
followed. After careful consideration, we find no reason to upset
the well-reasoned decisions of the district court.
I.
In June 2020, Porsche moved ex parte in the District of
Massachusetts to obtain an order compelling discovery under
section 1782 from (among others not party to this appeal) the
following Hancock Affiliates: John Hancock Advisers, LLC and John
Hancock Investment Management Services, LLC, which are investment
managers for various German Plaintiffs, and John Hancock Life
Insurance Company (USA), an entity that maintains records of
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securities transactions for the John Hancock Funds. The Hancock
Affiliates are not parties to the German Actions. Rather, as
corporate affiliates of the Hancock Plaintiffs, they provide
investment advice and management services. Porsche sought
discovery from the Hancock Affiliates regarding the trading
activities of, and strategies employed on behalf of, the Hancock
Plaintiffs.
After the district court granted Porsche's application
for discovery, Porsche served relevant subpoenas. The Hancock
Affiliates then moved to vacate or modify the district court's
order granting the subpoenas, so as to quash or modify the
discovery. The Hancock Affiliates also sought reciprocal
discovery. The Hancock Plaintiffs purported to "informally join"
the motion to vacate or modify, but did not file any motion to
intervene. The district court referred the Hancock Affiliates'
motion to a magistrate judge, who conducted a hearing and issued
a detailed report.1 The magistrate judge found that some of
Porsche's discovery requests were overbroad, but that some
discovery was, nevertheless, warranted. The magistrate judge
therefore recommended that a pared-down version of the requests be
1
The magistrate judge actually issued orders with respect
to both the motion to quash and the subsequent motion to intervene.
However, on appeal, the district court judge effectively treated
both orders as reports and recommendations. We have adopted the
district court's nomenclature.
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allowed, subject to a confidentiality order. The Hancock
Affiliates timely sought de novo review by the district court; in
turn, the magistrate judge stayed any ordered discovery pending
that review.
While the district court's review was pending, and five-
and-a-half months after the motion to quash was filed, the Hancock
Plaintiffs sought to intervene. The magistrate judge recommended
denying the motion, finding that it was untimely and that it was
simply an attempt to relitigate the magistrate judge's decision on
the motion to quash. Agreeing with the magistrate judge, the
district court issued orders on February 19, 2020, denying both
the motion to intervene and, in large part, the motion to quash.2
The Hancock Plaintiffs now appeal the denial of their
motion to intervene, while the Hancock Affiliates appeal the
district court's rulings granting section 1782 discovery and
denying reciprocal discovery. For the following reasons, we affirm
both rulings by the district court.
II.
A.
We consider first the Hancock Plaintiffs' appeal of the
denial of their motion to intervene. The Hancock Plaintiffs
2 The district court found that the magistrate judge properly
ordered the parties to narrow a certain definition at issue in the
subpoenas and to meet and confer about the scope of discovery.
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contend that the district judge failed to conduct de novo review
of the magistrate's report and recommendation denying that motion.
But the district court explicitly stated that "[a]fter de novo
review of [the magistrate judge's] Memorandum and Order . . . ,
which the Court treats as a Report and Recommendation, the Court
ADOPTS [the magistrate judge's] opinion and DENIES the motion to
intervene . . . . Her meticulous and thorough analysis is
correct." Undeterred, the Hancock Plaintiffs ask us to vacate the
district court's ruling because the district court did not
expressly say that it reviewed the record and memoranda de novo.
We are unimpressed. Courts regularly say that they will
engage in de novo review of an order without belaboring the point
that such a review obviously encompasses an independent
examination of the memoranda and the relevant record. In the very
case the Hancock Plaintiffs cite, we ourselves described the de
novo review required as review of the "order." ML-CFC 2007-6 P.R.
Props., LLC v. BPP Retail Props., LLC, 951 F.3d 41, 49 (1st Cir.
2020) ("[W]e remand for the district court to apply de novo review
to the magistrate judge's unauthorized order . . . ."). The
Hancock Plaintiffs' reliance on different wording in the district
court judge's ruling on the discovery motion -- where the judge
reviewed "the record in this case" -- and in the ruling on the
motion to intervene -- where the judge stated that the court
conducted "de novo review of [the magistrate judge's] Memorandum
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and Order" -- is misplaced. This difference hardly means that by
not expressly describing his review of the record for the motion
to intervene, the district court judge indicated that he failed to
conduct such a review. And if there were any doubt on the matter,
it would be allayed by the dozens of record citations contained in
the district court's order.
This "failure to provide proper de novo review"
argument, as the Hancock Plaintiffs' lead argument, resembles the
thirteenth chime on a clock: You not only know it is wrong, but
it also causes you to wonder about everything else you hear from
that clock. Nevertheless, we briefly consider the Hancock
Plaintiffs' other principal argument -- that in finding the motion
to intervene untimely, the district court failed to recognize that
the Hancock Plaintiffs initially believed their interests would be
adequately represented by the Hancock Affiliates, and that only
after the district court largely denied the Hancock Affiliates'
motion to quash (relying in part on the Hancock Affiliates' status
as non-parties to the German Actions) did the Hancock Plaintiffs
appreciate that they, as plaintiffs in the German Actions, might
have an interest imperiled by the instant litigation. But the
Hancock Plaintiffs' too-clever-by-half attempt to "informally"
join in the proceeding while nevertheless holding it at arm's
length belies this contention. In any event, the district court
concluded in its discretion that the Hancock Plaintiffs'
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intervention would have had no material impact on the outcome of
the motion to quash, presumably because the discovery was sought
from the Respondents, not the Plaintiffs. The Hancock Plaintiffs
offer no convincing rejoinder to that conclusion.
We have considered the other arguments floated by the
Hancock Plaintiffs in their effort to challenge the district
court's exercise of its wide discretion in ruling de novo on the
motion to intervene. Finding none that rise to a level that would
require further attention, we find no abuse of discretion in the
district court's denial of the Hancock Plaintiffs' motion to
intervene.
B.
We turn now to the Hancock Affiliates' appeal of the
denial of their motion to quash. We review that denial for abuse
of discretion, unless it rests on an interpretation of law, in
which case we apply de novo review. In re Schlich, 893 F.3d 40,
46 (1st Cir. 2018).
Section 1782 authorizes district courts to order persons
residing in their district to participate in discovery "for use in
a proceeding in a foreign or international tribunal" when an
application for such discovery is made by a foreign or
international tribunal, or by "any interested person." 28 U.S.C.
§ 1782(a). Once the statutory requirements are satisfied,
district courts have discretion to grant section 1782 discovery.
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In exercising this discretion, courts consider (1) whether the
discovery is sought from a participant in a foreign proceeding
(thereby suggesting that the foreign tribunal might obtain the
discovery "absent § 1782(a) aid"); (2) "the nature of the foreign
tribunal, the character of the proceedings underway abroad, and
the receptivity of the foreign government or the court or agency
abroad" to assistance from U.S. federal courts; (3) whether a
section 1782 request "conceals an attempt to circumvent foreign
proof-gathering limits or other policies of a foreign country or
the United States"; and (4) whether the subpoena contains "unduly
intrusive or burdensome requests." Intel Corp. v. Advanced Micro
Devices, Inc., 542 U.S. 241, 264–65 (2004); see also In re Schlich,
893 F. 3d at 46–47.
The district court did not abuse its discretion in
finding that Porsche met the statutory requirements of
section 1782(a), nor did it abuse its discretion in weighing the
Intel factors. See In re Schlich, 893 F.3d at 52 (applying an
abuse-of-discretion standard to review of a dispute over Intel
factors). The magistrate judge and the district court each applied
the correct legal standard, carefully considered the relevant
factors, and came to well-reasoned conclusions. Of note, the
district court did not approve sweeping discovery without
limitations; instead, the district court ordered the parties to
confer and to narrow certain definitions. The Hancock Affiliates
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argue about whether the German tribunal actually requested the
information sought by Porsche. But they raise no plausible
argument that the information sought would not be welcomed for use
in the proceedings in that tribunal. Instead, they argue that the
information cannot meet section 1782's "for use" requirement as
the evidence will not be relevant for at least five years, given
the Hancock Affiliates' estimates of the projected duration of
various portions of the German Actions. But as this litigation
shows, a party seeking discovery need often leave time to overcome
persistent resistance, and Intel requires only that the proposed
discovery's use be "within reasonable contemplation." 542 U.S. at
259.
The Hancock Affiliates argue that the district court
should have deemed all Hancock entities to be one and the same
entity, so that documents possessed by the Hancock Affiliates might
be deemed to be within the control of the Hancock Plaintiffs, who
are in turn within reach of the German tribunal. At least in the
absence of a more compelling showing, we see no abuse of discretion
in rejecting this veil-piercing argument when tendered by those
who wove the veil in the first instance.
The Hancock Affiliates also complain that the district
court looked at whether the documents sought by Porsche were within
the jurisdictional reach of the German tribunal, rather than
whether the "discovery [was] sought [from] a participant in the
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[German] proceeding." Intel Corp., 542 U.S. at 264. This is a
strange complaint. Given that the Hancock Affiliates, from whom
discovery is sought, are not themselves participants in the German
proceeding -- a fact which weighs in favor of granting § 1782(a)
-- it could only have worked to the Hancock Affiliates' benefit
for the district court to have considered whether the documents
themselves might nevertheless somehow have been within the reach
of the German tribunal.
The Hancock Affiliates next contend that the district
court erred in refusing to exercise its discretion to order
reciprocal discovery from Porsche. The asserted error arises from
the fact that the court, in so deciding, noted that Porsche, unlike
the Hancock Affiliates, is already subject to the jurisdiction of
the German tribunal. The Hancock Affiliates argue that this was
error because the location of the documents abroad is not, without
more, a valid reason to reject reciprocal discovery. The simple
answer is that there was more: The district court expressly found
that the Hancock Affiliates had failed to explain to either the
magistrate or the district court the "specif[ic] [] purpose this
[reciprocal] discovery serves." Such a complete failure by itself
justifies denial of the reciprocal request.
The Hancock Affiliates do make one point worth further
discussion: The German Actions have evolved into a form of class
action, with a test-case approach, leaving most investors as
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passive free riders on questions of liability, in a way that is
(somewhat) similar to a class action under Federal Rule of Civil
Procedure 23. And courts should be attentive to the possibility
of abuse when discovery is targeted directly or indirectly at
passive class members. See 3 William B. Rubenstein, Newberg on
Class Actions § 9:11 (5th ed. 2020); see also In re Modafinil
Antitrust Litig., 837 F.3d 238, 257 (3d Cir. 2016) (citing Clark
v. Universal Builders, Inc., 501 F.2d 324, 340—41 (7th Cir. 1974),
for the proposition that defendants must show that discovery sought
from unnamed class members is not requested "as a tactic to take
undue advantage of the class members or as a stratagem to reduce
the number of claimants"); Fishon v. Peloton Interactive, Inc.,
336 F.R.D. 67, 70 (S.D.N.Y. 2020) ("[C]ourts must be careful to
avoid the in terrorem effect of extensive absent class member
discovery, creating the risk that absent class members could
proactively choose to opt out of the class action for fear that if
they do not do so, they will be subjected to vexatious or at least
burdensome discovery practice."). This is why courts that allow
discovery from absent class members in actions under Federal Rule
of Civil Procedure 23 have allowed such discovery only after
considering multiple factors, including whether the defendant has
a good faith purpose and whether the request is unduly burdensome.
See Rubenstein, supra, §§ 9:11, 9:13; see also id. § 9:15.
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Porsche, though, in seeking discovery concerning the
Hancock Plaintiffs, has targeted what Porsche tells us is one of
the largest group of investors in the German Actions, with a damage
claim of about 6 million euros. Nor, for that matter, are the
Hancock Plaintiffs individuals who passively found themselves in
a class action without themselves initiating suit. The German
tribunal, too, has signaled that it is receptive to receiving a
real example of the type of trading activity and strategy that
Porsche claims exists and would reduce claimable damages. Given
these facts, we do not think that the district court abused its
ample discretion in deciding whether or not to allow the discovery.
All in all, the district court's judgments are
quintessentially the types of discretionary adjudications made by
district courts in resolving discovery disputes. Even when such
rulings could have gone either way in the district court, they
rarely provide suitable fodder for successfully sustaining an
appeal.
III.
For the foregoing reasons, we affirm the district
court's orders denying the Hancock Plaintiffs' motion to intervene
and denying in part the Hancock Affiliates' motion to quash.
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