In Re: App for an Order v.

• Court: Court of Appeals for the First Circuit
• Decided: January 15, 2021
• Docket: 20-1239P
• Status: Published

Opinion

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

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

- 3 - 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.

- 4 - 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.

- 5 - 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

- 6 - 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'

- 7 - 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.

- 8 - 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

- 9 - 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

- 10 - [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

- 11 - 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.

- 12 - 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.

- 13 -