Bolch Judicial Institute
Duke Law School
It is now well established that a United States federal court may compel a foreign party challenging the court’s exercise of personal jurisdiction to engage in jurisdictional discovery pursuant to the Federal Rules of Civil Procedure. Similarly, when a foreign party is subject to personal jurisdiction, a federal court may compel a foreign party to engage in merits discovery pursuant to the Federal Rules of Civil Procedure, without resorting first to any applicable international treaties. This is the holding of the Supreme Court’s decision in Societe Nationale Industrielle Aerospatiale v. U.S. District Court for the Southern District of Iowa, 482 U.S. 522 (1987).
However, Aerospatiale did not answer the question of how merits discovery can be taken from a foreign party before a jurisdictional challenge is resolved.
In the following pages, I propose an answer to this question: Absent a finding of personal jurisdiction, it is inappropriate to compel a foreign party to engage in merits discovery under the Federal Rules of Civil Procedure. Rather, it is only appropriate to use an applicable international treaty.
In April 2014, global natural resources giant Rio Tinto plc commenced a lawsuit accusing a group of defendants of conspiring to steal its rights to develop an iron ore mine in Guinea.1 The defendants included international businessman Benjamin Steinmetz, Guernsey-based BSG Resources Limited, and VBG, a joint-venture between BSG Resources Limited and Brazilian natural resources company Vale S.A., which was also named as a defendant.2 Mr. Steinmetz, BSG Resources, and VBG, none of whom is based in the United States, challenged the court’s exercise of personal jurisdiction over them, moving to dismiss Rio Tinto’s complaint pursuant to Federal Rule of Civil Procedure 12(b)(2).3
Notwithstanding the motion to dismiss, the court directed that merits discovery proceed.4 The court did not, however, specify how discovery was to proceed.5 While Rio Tinto served discovery demands pursuant to the Federal Rules of Civil Procedure, Mr. Steinmetz and BSG Resources took the position that until the court found that they were subject to the personal jurisdiction of the court, they were effectively third parties for discovery purposes. They argued that this status, combined with their international locations, required that merits discovery proceed through the Convention On The Taking Of Evidence Abroad In Civil Or Commercial Matters6 (“Hague Convention”).7 Ultimately, the parties reached a compromise that precluded the need for a ruling on the issue.8
The court’s decision to require merits discovery to proceed before the jurisdictional challenge was resolved, though perhaps rare, was not unique. Federal district judges in New Mexico, Tennessee, Ohio, and New York have made similar rulings.9 Indeed, as one federal magistrate judge in Ohio put it:
Parties commonly move for stays of discovery pending a variety of Rule 12 motions, including motions to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction, or improper venue. However, the impact of these types of motions on the issue of whether discovery should proceed is not substantially different. In fact, it could be argued that because these types of motions do not go to the merits of the case, but only to the forum in which it proceeds, there is even less reason to stay discovery pending their outcome. Any discovery taken while such a motion is pending would, of course, be available for the parties to use if the case is dismissed other than on the merits and then refiled in a Court where subject matter or personal jurisdiction is proper.10
In the Rio Tinto matter, but for the parties’ compromise, the court would have been faced with a motion to compel and forced to decide whether it could require a foreign party with an unresolved jurisdictional challenge to engage in merits discovery under the Federal Rules of Civil Procedure. Given the increasingly global nature of business and federal litigations, it is very likely that the situation that arose in Rio Tinto will arise again. Next time, though, the parties may not be able to stipulate away the dispute.
At present, there is no clear answer on whether a party that has challenged the court’s exercise of personal jurisdiction can be required to engage in merits discovery under the Federal Rules of Civil Procedure prior to a resolution of the challenge. The purpose of this article is to propose an answer to this question. It argues that, prior to finding that a party is subject to personal jurisdiction, a court should not require the party to engage in merits discovery pursuant to the Federal Rules of Civil Procedure.
The article begins with an explanation of how discovery pursuant to the Hague Convention operates. It then reviews the judicial decisions that establish the rules for two similar — but materially different — situations: (i) cases involving merits-based discovery from foreign defendants who accede to the personal jurisdiction of the court, and (ii) cases involving jurisdictional discovery of foreign defendants who challenge the court’s exercise of personal jurisdiction over them. With these cases as a backdrop, the article presents its argument for why a court should not require a party to engage in merits discovery through the Federal Rules of Civil Procedure prior to ruling that a foreign party is subject to personal jurisdiction.
The Hague Convention entered into force in July 1972 with the intention of improving “mutual judicial co-operation in civil or commercial matters.”11 It accomplishes this goal by providing a new mechanism for obtaining discovery from an individual or entity located in a foreign contracting state. The mechanism obviates the need to send a Letter Rogatory, via the United States Department of State, through time-consuming diplomatic channels.12
To use the Hague Convention, the United States court issues a Letter of Request directly to the Central Authority of the state where the target of the discovery is located. The Letter of Request, which may need to be translated into the language of the receiving state, should include the identity of the requesting authority, the identities of the parties to the litigation, the nature of the litigation, and the evidence sought.13 The Convention allows for judicial personnel of the requesting authority and the parties to participate in executing a Letter of Request, as well as to request the use of special procedures. However, any requested special procedures must not be incompatible with local law, which governs the execution.14
Once the Central Authority receives the Letter of Request, it forwards the Letter to the Competent Authority for execution.
In addition to the extra time (and thus cost) it takes to obtain discovery through the Hague Convention compared to the Federal Rules of Civil Procedure, the most prominent drawback to the Convention’s use from the perspective of a United States lawyer is that the scope and modes of discovery are limited by the contracting states.15 Article 23 of the Hague Convention permits contracting states to declare that they “will not execute Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in Common Law countries.”16
Another drawback to the Hague Convention is that challenges to the executed Letter of Request will occur in the foreign country, not in the United States court. Therefore, parties will be required to hire foreign counsel to defend the requests, raising the costs of discovery.
In sum, while the Hague Convention obviates the need to utilize diplomatic channels, it still requires more time and, in all likelihood, more money than discovery under the Federal Rules of Civil Procedure. The discovery available through the Hague Convention is also likely to be more limited than discovery that would be obtainable under the Federal Rules of Civil Procedure. As a result, it is foreseeable that parties requesting information to support their case are likely to oppose the use of the Hague Convention, while foreign defendants who want to limit access to their files are likely to argue in favor of its use.
In 1987, the Supreme Court issued its precedential ruling on the use of the Hague Convention versus the Federal Rules of Civil Procedure to obtain discovery from foreign parties.17 Aerospatiale involved two French defendants that had been sued by United States citizens in the United States District Court for the Southern District of Iowa. The foreign defendants did not contest the District Court’s exercise of personal jurisdiction over them, nor did they initially object to the use of the Federal Rules of Civil Procedure for discovery purposes.18 However, following plaintiffs’ propounding of additional document requests, interrogatories, and requests for admission pursuant to the Federal Rules, the defendants moved for a protective order, arguing that pretrial discovery could only proceed through the Hague Convention.19
The magistrate judge to whom the case had been assigned denied the defendants’ motion, explaining that “[t]o permit the Hague Evidence Convention to override the Federal Rules of Civil Procedure would frustrate the courts’ interests.”20 The United States Court of Appeals for the Eighth Circuit subsequently affirmed the magistrate judge’s decision, holding that “when the district court has jurisdiction over a foreign litigant the Hague Convention does not apply to the production of evidence in that litigant’s possession, even though the documents and information sought may physically be located within the territory of a foreign signatory to the Convention.”21
The Supreme Court granted certiorari to address “the extent to which a federal district court must employ the procedures set forth in the [Hague] Convention when litigants seek answers to interrogatories, the production of documents, and admissions from a French adversary over whom the court has personal jurisdiction.”22 Justice John Paul Stevens, writing for the Court, reviewed the text of the Hague Convention and concluded that it does not contain any “plain statement” indicating an intention to preempt the Federal Rules of Civil Procedure.23 Without such a statement, Justice Stevens wrote, “the Hague Convention d[oes] not deprive the District Court of the jurisdiction it otherwise possesse[s] to order a foreign national party before it to produce evidence physically located within a signatory nation.”24 In other words, when a district court has jurisdiction over a foreign party, “the [C]onvention procedures [are] optional to be employed at the election of the trial court when they will facilitate the gathering of evidence by the means authorized in the Convention.”25 In evaluating whether the Hague Convention procedures should be employed, the Court explained, judges should apply a three-pronged test that involves considering the particular facts of the case, sovereign interests involved, and the “likelihood that resort to [the Hague Convention] procedures will prove effective.”26
Since Aerospatiale was announced, the Court’s rejection of a first-resort rule has been extended to jurisdictional discovery, including jurisdictional discovery which overlaps with merits-based discovery.27
The first case to make this application was Rich v. KIS California, Inc.28 In Rich, the district court required the use of the Federal Rules for jurisdictional discovery for expediency and efficiency purposes, noting also that the limited discovery sought was “not intrusive” and that no “important sovereign interest” would be implicated.29 Rich was followed by In re Bedford Computer Corp., which adopted Rich’s reasoning in toto without further significant analysis.30
A few years later, in Fishell v. BASF Group, Magistrate Judge Ross A. Walters in the Southern District of Iowa recognized the “surface appeal” of the argument that plaintiff should be limited to using the Hague Convention until the court ruled on personal jurisdiction, but ultimately rejected it as “neither conceptually nor practically sound.”31 Judge Walters concluded that even though “[p] ersonal jurisdiction was not challenged in Aerospatiale . . . the court’s reasoning is not consistent with a blanket rule requiring resort to the Convention in such cases [involving jurisdictional discovery].”32
The next case to make this application and offer significant analysis came from the United States District Court for the District of Columbia in 2000. In In re Vitamins Antitrust Litigation, Judge Thomas Hogan was faced with motions to dismiss by several foreign defendants who were accused of conspiring to fix prices and market share in vitamin products.33
Before the motions were resolved, plaintiffs served jurisdictional discovery requests. The foreign defendants, in turn, objected to providing any discovery, arguing that Aerospatiale should not apply to cases where personal jurisdiction is still at issue.34 Plaintiffs moved to compel, which Judge Hogan referred to a special master for a report and recommendation.35 The special master faced the question of “whether discovery taken to establish personal jurisdiction over [the] foreign defendants must proceed under the Hague Convention or whether the Court has discretion to order this discovery to proceed in accordance with the Federal Rules.”36 The special master ultimately recommended that the court should “proceed under the Aerospatiale balancing test” for those defendants residing in signatory nations, and that “the burden of proof should be placed on the defendants to show why, under Aerospatiale’s three-prong test, the Hague Convention procedures should be used in this case.”37
Judge Hogan began his analysis by considering “whether there are legal or policy reasons for requiring first use of [the] Hague [Convention] for jurisdictional discovery of foreign defendants despite the Supreme Court’s clear rejection of this first-resort rule in cases where jurisdiction has been established.”38 He reasoned that since the court’s ability to determine its jurisdiction was well settled, and that jurisdiction over the foreign defendants existed at least “to the extent necessary to determine whether or not they are subject to personal jurisdiction,” there was “no legal barrier to exercising the discretion given to trial courts by Aerospatiale in cases of jurisdictional discovery.”39
Exercising this discretion, Judge Hogan considered “the facts of this case and the principles of international comity,” and concluded that “the sovereign interests of these six signatory countries [where defendants resided] would [not] be more affected by application of the Aerospatiale balancing test in this case than they would be in a case where the Court has conclusively established its jurisdiction.”40 This conclusion, he explained, was based on three facts: (i) the nations in which the foreign defendants resided had laws that prohibited the type of conduct at issue in the litigation; (ii) jurisdiction had not been alleged completely speculatively; and (iii) the special master had narrowed the discovery requests at issue so that they were narrowly tailored to address only the jurisdictional issue, rather than liability generally.41
Turning to the three-pronged balancing test, Judge Hogan first found that the most important fact of the case — the burden imposed by the discovery — was as “unintrusive as possible under the circumstances” since the special master had narrowed the discovery requests.42 With respect to sovereign interests, Judge Hogan noted that it was important to consider both the interests of the foreign countries as well as that of the United States, and that since the discovery requests had been narrowed, the interests of the foreign countries would not be “unduly hampered by proceeding with jurisdictional discovery according to the Federal Rules.”43 Finally, on the effectiveness of the Hague Convention, Judge Hogan found that resorting to Hague Convention procedures would take longer and cost more than would proceeding under the Federal Rules. “Given the need for prompt resolution of these jurisdictional questions and the time and cost to both sides in dragging out this process any longer than is necessary, the Court finds that jurisdictional discovery under the Federal Rules is appropriate in this case.”44
Having found that the balancing test did not weigh in favor of proceeding under the Hague Convention, Judge Hogan granted plaintiffs’ motion to compel and required the foreign defendants to proceed with jurisdictional discovery under the Federal Rules of Civil Procedure.45
The first federal appellate review of the application of Aerospatiale to jurisdictional discovery was the Third Circuit Court of Appeals’ 2004 decision in In re Automotive Refinishing Paint Antitrust Litigation.46 Following Judge Hogan’s analysis in the Vitamins case, the circuit court reasoned that “a trial court has authority to determine its jurisdiction” and “[b]ecause the District Court has jurisdiction over these foreign defendants to the extent necessary to determine whether they are subject to personal jurisdiction, we see no barrier to exercising the discretion given to trial courts by Aerospatiale in cases of jurisdictional discovery.”47 In other words, the court held “that the Aerospatiale balancing test applies equally to jurisdictional discovery and that there is no first-resort rule in favor of the Hague Convention procedures for jurisdictional discovery.”48
The circuit court rejected defendants’ argument that the fact that the discovery in question was jurisdictional discovery rather than merits discovery was significant:
The distinction drawn by the appellants between “merits” discovery and “jurisdictional” discovery, predicated on a false dichotomy of having and not having jurisdiction, amounts to no real difference because the court has jurisdiction for either type of discovery. The undisputed presence of personal jurisdiction in Aerospatiale is, therefore, tangential to its holding and irrelevant to the issue of whether Aerospatiale applies also to jurisdictional discovery.49
The circuit court did not make a finding about whether a rule of first resort should apply to situations involving merits discovery from a foreign party over whom personal jurisdiction has not been established.50
The court of appeals then offered three additional reasons why “the Aerospatiale balancing approach applies equally to the determination of whether Hague Convention procedures should be used initially for jurisdictional discovery.”51 First, since the Supreme Court rejected a rule of first resort for merits discovery, “there is more justification to reject a first resort rule for the more limited and less intrusive jurisdictional discovery.”52 Second, since the Supreme Court rejected a rule of first resort in a situation where the foreign defendant faced potential penal sanctions under its home-state’s blocking statute, “there is less justification . . . to adopt a first-resort rule where appellants here face no such sanction.”53 And third, there is no reason to believe that foreign sovereign interest would be offended since the foreign defendant’s home state has laws that prohibit the same type of conduct at issue in the litigation and “would welcome investigation” of such unlawful conduct “to the fullest extent.”54
The court of appeals concluded by affirming the district court’s holding that the Aerospatiale balancing test did not favor the use of the Hague Convention procedures in the case.55
Notably, although concurring in the judgment, Circuit Judge Jane Roth wrote separately “to express [her] concern that the Hague Convention has been given short shrift since the Supreme Court’s decision in [Aerospatiale].”56 Joined by Circuit Judge Theodore McKee, who “share[d] the concerns expressed” in the concurrence, Judge Roth explained that the Hague Convention should be considered equal, not inferior to, the Federal Rules of Civil Procedure, and cautioned judges not to discard the Hague Convention “as an unnecessary hassle.”57 In support of her contention, Judge Roth set forth the conclusions of former Third Circuit Judge Joseph F. Weis Jr. and the Special Commission of the Hague Conference of April 1989, both of whom thought priority should be given to the Hague Convention procedures.58 Judge Roth concluded her concurrence by calling on the Supreme Court to revisit Aerospatiale “because [she] perceive[d] that many of our courts have not exercised the ‘special vigilance to protect foreign litigants’ that the Supreme Court anticipated.”59
Since the Third Circuit’s decision in 2004, courts have continued to apply Aerospatiale to cases involving foreign parties in the jurisdictional discovery context. At least one court has also applied Aerospatiale to a situation where jurisdictional and merits discovery overlaps or is intertwined.60 Additionally, one magistrate judge has applied Aerospatiale to a foreign party from whom merits discovery was being sought prior to the resolution of that party’s jurisdictional challenge. In his decision, the magistrate judge applied Aerospatiale without addressing the jurisdictional question.61 The foreign party’s motion to dismiss was granted one week after the magistrate judge’s order, so no further review of his decision ever occurred.62 The case law is presented visually in the table on page 60.
The remainder of this article addresses why the Federal Rules of Civil Procedure should not be used to pursue merits discovery from a party over whom personal jurisdiction has not yet been established. As explained above, the situation is ripe to occur. Because the article concludes that only Hague Convention procedures should be used in such a situation, it also necessarily concludes that Aerospatiale’s ‘no rule of first-resort’ should not be extended any further than it already has been.
It is axiomatic that United States federal courts are courts of limited jurisdiction.63 “The validity of an order of a federal court depends upon that court’s having jurisdiction over both the subject matter and the parties.”64 A federal court may only exercise jurisdiction over a person or entity if that person or entity has sufficient minimum contacts to the state in which the court sits.65 This requirement flows from the Due Process Clause; it “recognizes and protects an individual liberty interest.”66
The Federal Rules of Civil Procedure are the means by which a court’s jurisdiction over a party can be exercised. They provide both the rules of litigation as well as the sanctions for violations. Because the court has limited jurisdiction, so too must its tool — the Federal Rules — be limited. To apply the sanctions in the Federal Rules to a person or entity over whom the court does not have jurisdiction would contradict the notion of limited jurisdiction and violate due process concerns.67 This is why a court must generally confirm it has personal jurisdiction over a named defendant before entering a default judgment.68 It is also why discovery from a person or entity located in a foreign country that is not named as a party to a litigation can only be obtained through letters rogatory or international treaties.69
The only difference between a situation where a foreign person or entity is a stranger to a litigation (where the Federal Rules unquestionably cannot be applied) and one where the foreign person or entity has been named as a party (where it is unclear whether the Federal Rules can be applied) is a plaintiff’s decision about whom to name as a defendant. This decision may be made without repercussion upon the satisfaction of a relatively low condition.70 And since the defendant’s method for challenging the satisfaction of this condition — a motion to dismiss — might not be decided prior to the court ordering merits discovery to commence,71 a named defendant may find itself engaging in merits discovery even though there is actually no basis in law or fact for that defendant to be named as a party in the first place.
There are three problems with this outcome. First, subjecting a named party in this situation, that is, one in which a jurisdictional challenge is unresolved, to the Federal Rules for activity other than the determination of jurisdiction is unfair to the named party.72 It would compel a foreign individual or entity to act, at the risk of sanction, in accordance with a set of rules even though it could not be fairly said that the foreign individual or entity at any point consented to be bound by those rules and sanctions.73 The unfairness is especially acute in the discovery context because of the broad discovery permitted under the Federal Rules.74 A foreign individual or entity may be compelled to disclose private, confidential, and sensitive information that its own judicial system would protect.
Second, this outcome is antithetical to the concept of limited jurisdiction that defines our courts. Federal courts have the authority to command only those properly before it. The fact that an individual or entity has been named a party should not change the status of that individual or entity from stranger to subject until it is determined that jurisdiction exists. To do otherwise would change the basis of the court’s exercise of power from practical reality to a procedural technicality. It would also turn the court’s jurisdiction — symbolized by the use of the Federal Rules — into something that can be extended based on the whims of a biased plaintiff. This would be contrary to the federal system of jurisdiction, where it is for courts, not parties, to decide where jurisdiction lies. Indeed, this is why parties cannot waive subject-matter jurisdiction requirements.
Third, plaintiffs should not be permitted to use the Federal Rules’ broad discovery provisions to extract information from foreign individuals or entities that never consented to be bound by such rules. If it is known that sensitive information can be obtained, with relatively little cost, from a foreign individual or entity, then potential plaintiffs may be incentivized to commence — or at least threaten to commence — an action in the hopes that the court will permit merits discovery to go forward before resolving a motion to dismiss. The threat of facing American-style discovery without recourse may be a valuable weapon in settlement negotiations.
An analogy to illustrate this point may be helpful. On the schoolyard playground, a group of students plays a game of tag, while another group plays dodgeball in an adjacent area. A student in the game of tag runs up to an outfielder in the dodgeball game, taps him on the shoulder, and yells “YOU’RE IT.” In a lawsuit, this would be the naming of a foreign defendant and service of process. The outfielder protests to the umpire of the game of tag (the judge) that he is not playing tag, but is only playing in the dodgeball game (a motion to dismiss).
The umpire overseeing the game of tag must now decide whether it was fair for the outfielder to be brought into the game (whether personal jurisdiction exists). Was the outfielder participating in the game in any way such that it would be fair to require him to now participate as “IT” (did the outfielder have sufficient minimum contacts to the jurisdiction)? This question can only be answered with reference to the rules of the game of tag. For example, if the game of tag requires players to wear green shirts and to stand in a certain area of the field, was the outfielder wearing a green shirt in the designated area (were the requirements of a long-arm statute and the Due Process Clause satisfied)? The umpire asks the outfielder these questions (jurisdictional discovery). Because the outfielder has requested the umpire to make a ruling in his favor, the umpire may insist that the questions posed be answered in the manner the umpire wants them answered (requiring the use of the Federal Rules for jurisdictional discovery).
However, it would not be consistent with notions of ‘fair play’ for the umpire to require the protesting outfielder to abandon his position in the dodgeball game and require him to play the game of tag (and all that requires) before determining whether the outfielder really was voluntarily playing that game. If the outfielder chose not to play the game of tag because he did not want to run around as that game requires, or did not want to play with the particular students in that game, then making him do so simply because he was nearby and was “tagged” would violate his right to decide which game to play and which not to play. Of course, if it turns out that the outfielder was playing both games, then forcing him to play “IT,” even at the risk of sanction in the dodgeball game, may be considered fair.
Limiting the application of the Federal Rules of Civil Procedure to situations in which a court is determining its own jurisdiction or where a court has resolved personal jurisdiction challenges would ensure that the court remains the arbiter of its own jurisdictional reach. It would also prevent plaintiffs from subjecting innocent foreign individuals and entities to the rules of a system the foreigner never consented to. Instead, plaintiffs would need to utilize established alternative procedures, such as the Hague Convention. These alternative procedures generally require the consent and involvement of the foreigner’s own government.75 As a result, procedural protections the foreigner would be likely to expect will be observed, ameliorating due process concerns.76 Of course, if the court finds personal jurisdiction, it would then need to decide whether to employ discovery procedures under the Hague Convention or the Federal Rules after applying the Aerospatiale principles.
In sum, limiting the Federal Rules’ application before personal jurisdiction has been established will promote the principles of limited jurisdiction and due process that underlie the federal courts.
Returning to Aerospatiale, if it is inappropriate to apply the Federal Rules of Civil Procedure to merits discovery prior to resolving a jurisdictional challenge, then there is no need to determine whether there should be a rule of first resort. In other words, Aerospatiale’s holding is premised on there being a choice between two available options, the Federal Rules and the Hague Convention. If the Federal Rules are not available as an option before personal jurisdiction has been established, then the only option left for discovery will be to use the Hague Convention or a similar mechanism.
As explained above, subjecting foreign individuals and entities to the Federal Rules of Civil Procedure for merits-related discovery prior to the resolution of jurisdictional challenges would not provide for the due process parties in the federal courts should receive. Instead, to ensure that foreigners are not subjected to and potentially sanctioned by a system with which they have no relation, courts should require resort to international treaties prior to establishing the presence of personal jurisdiction. Following this conclusion also means that Aerospatiale’s ‘no rule of first resort’ holding should not be extended further than it already has. Rather, where a plaintiff seeks merits discovery from a foreign defendant and the court directs discovery to proceed prior to resolving a personal jurisdiction challenge, the court should also require the plaintiff to utilize the Hague Convention, rather than the Federal Rules.