by Andrew Flake
Reminding us of why 28 U.S.C. Section 1782 matters in cross-border litigation, the Eleventh Circuit in a just-published decision affirmed the validity of subpoenas directed at a U.S. company for records, not of the U.S. company, but of multiple affiliates located in Mexico.
Here’s the background. Along with two business partners, appellee Gonzalez formed a business in Mexico, Verfruco, to sell avocado pulp and guacamole internationally. He took an 8% ownership interest, and later, when the company established a U.S. subsidiary, took in that entity a 3% ownership interest.
From 2007 through 2020, Verfruco’s sales climbed above $50 million. The avocado business was good. Owner relations, by contrast, were not: by Gonzalez’s account, his partners froze him out of Verfruco, depriving him of the value of his 8% stake by moving Verfruco Mexico’s assets into other companies they controlled, each a separate Mexican entity.
So far then, we have Mexican business partners, owners in a Mexican limited liability company, with assets in Mexico, allegedly moved into other Mexican companies. To address such conduct, Gonzalez would need to initiate fraudulent-transfer litigation in Mexico.
Yet before filing any litigation in Mexico — indeed, with only the intention to file litigation–Gonzalez applied to federal district court in Miami to issue subpoenas to Verfruco U.S. Wide-ranging, these subpoenas sought documents and deposition testimony located here concerning “(1) assets, revenues, and profits of the Mexican Companies; (2) transfers of assets or cash from the Mexican Companies to the Brothers [Gonzalez’s business partners] or to companies owned and/or controlled by them; and (3) evidence of Gonzalez’s ownership interest in the Mexican Companies and efforts to deprive him of that interest.”
On an ex parte basis, permitted under the streamlined statutory Gonzalez employed, the district court authorized those subpoenas. Upon receiving them, Verfrucos and the co-owners objected, again in district court, seeking to quash them. A magistrate judge denied that motion, an order that the district court then affirmed.
The result: The subpoenas went forth. Mr. Gonzalez has or will obtain supporting documents and deposition testimony here in the United States to support a case that will presumably be litigated entirely in Mexico, and a case, on top of that, he had not yet filed.
How was that possible? Had the Verfrucos documents and witnesses been in Germany or France, for example, the process and result would have been different. He would have had to proceed via an international treaty, the Hague Evidence Convention, that is both cumbersome and frequently the subject of numerous exceptions or reservations.
Instead, because the evidence was in the control of a U.S. company, an alternative to the Hague Evidence Convention existed: 28 U.S.C. Section, a statutory multi-tool that enables foreign litigants to obtain discovery under the Federal Rules of Civil Procedure, for use not here but in litigation in their home jurisdictions. Once the basic requirements are satisfied, including that an interested party is involved in or contemplating foreign litigation, the request does not run afoul of local law, and that the evidence will be used in a proceeding before a foreign or international tribunal, the district court has discretion to grant the application.
I’ve written before about the mechanics of 28 U.S.C. Section 1782, so I’d like to call out just two aspects of Verfruco Foods. First, it raises an interesting issue of corporate identity and control. The argument Gonzalez made, and that the district court accepted, was that Verfruco U.S. had “control” over corporate records and documents held by Verfruco Mexico, meaning that the court determined, as corporate affiliates, they “have actually shared responsive information and documents in the normal course of their business dealings.”
Second, and relatedly, his foray to U.S. district court provided a substantial information-advantage to Gonzalez. In the ordinary course of litigation in Mexico, a civil law system, it is not clear that this kind of wider-ranging discovery would be available. By seeking the same Mexican corporate documents, controlled as they were by a U.S. affiliate, Gonzalez was able to obtain potentially critical pre-filing evidence. Key to this was the apparently shared management and ownership among the Verfruco-group companies, a not uncommon arrangement.
For foreign counsel in disputes to be litigated in home country courts, where potential witnesses or evidence may be located in the United States, Section 1782 may be a path of choice, either pre-filing or, consistent with local practice and rule, during their home-country litigation.
The opinion is In re: Eduardo Gonzalez v. Verfruco Foods, Inc., Victor Sebastian Mauricio, et al., Case 21-12922 (11th Cir. decided Feb. 7, 2023)