On August 20, 2015, in Certain Funds, Accounts and/or Inv. Vehicles Managed by Affiliates of Fortress Inv. Group L.L.C. v. KPMG, L.L.P., the US Court of Appeals for the Second Circuit denied the plaintiff investment funds' ex parte application for discovery under 28 U.S.C. § 1782 because they failed to establish that the evidence they sought was for use in ongoing or reasonably contemplated foreign proceedings (No. 14-2838, (2d Cir. Aug. 20, 2015)).

The fund plaintiffs sought discovery by ex parte application from the defendant American and international accounting firms relating to audits conducted by two affiliated Saudi conglomerates in which the funds held interests. In 2009, the Saudi conglomerates reported financial problems that were traced to fraud and embezzlement and ultimately defaulted on their financial instruments. Various legal actions were instituted in several countries, none of which involved the funds as a party. However, the funds sought discovery under 28 U.S.C. § 1782 for use in those proceedings and also in legal actions that the funds planned to initiate. The district court denied the funds' application because the funds failed to meet the statutory requirements of § 1782. Specifically, the district court held that the funds have not shown that the information sought was "for use" in the foreign proceedings, that they are "interested persons" in the foreign proceedings or that, for the funds' contemplated claims, a dispositive ruling by a foreign tribunal was within reasonable contemplation. The funds appealed.

The Second Circuit summarized 28 U.S.C. § 1782 as requiring the party seeking discovery to show that:

The court concluded that the funds failed to establish that the discovery they sought was for use in a foreign proceeding. Therefore, the court did not address whether the defendants were found in the district and did not decide whether the funds were "interested" within the meaning of the statute.

The court determined that the funds have not identified any way in which they could use the sought-after evidence in the current foreign proceedings. The court rejected the funds' primary argument that the information sought is highly relevant to those proceedings. The key question is whether the funds actually would be able to use the information they seek in those proceedings. The court noted that, at best, the plaintiffs could furnish information in the hope that it might be used. Because there was no evidence that the information sought would be used in the pending foreign proceedings, the funds failed to satisfy the statutory "for use" requirement, regardless of the usefulness of the requested information.

In addition to the ongoing proceedings at the time they made their application, the funds asserted that they intended to use the requested discovery in three actions not yet initiated. Based on the US Supreme Court's opinion in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the Second Circuit concluded that, to satisfy the "for use" requirement as it relates to intended proceedings:

The court determined that at the time the funds presented their § 1782 application to the district court, they had done little to make an objective showing that the planned proceedings were within reasonable contemplation. Noting the amount of time that lapsed between the Saudi conglomerates' default in 2009 and the funds' § 1782 application in 2014, the Second Circuit could not say that the district court erred in determining that the anticipated proceedings were not within reasonable contemplation at that time.

Practitioners seeking discovery for use in a foreign proceeding under 28 U.S.C. § 1782 should consider the appropriate timing of an application.