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In re Ex Parte Application of Porsche Automobil Holding SE

United States District Court, D. Massachusetts

November 6, 2019

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


          M. PAGE KELLEY United States Magistrate Judge

         I. Introduction.

         This action involves a motion to vacate or modify an ex parte order permitting discovery in a foreign proceeding pursuant to 28 U.S.C. § 1782 and to quash or modify the resultant subpoenas. (#21.) Section 1782 allows litigants in foreign proceedings to obtain evidence from persons who reside or who are found in the United States for use in the foreign tribunal. For the reasons set out below, the court denies the motion to quash, but narrows the subpoenas, because they are overbroad, and orders the parties to submit a protective order. The court denies the Hancock entities' request for reciprocal discovery.

         On April 5, 2019, Porsche Automobil Holding SE (Porsche)[1] filed an application under 28 U.S.C. § 1782 to serve subpoenas on John Hancock Advisors, LLC, John Hancock Investment Management Services, LLC, and John Hancock Life Insurance Co. (U.S.A.) (the Hancock entities), as well as Finepoint Capital LP, Finepoint Partners, LLC, and FPCAP LLC (the Finepoint entities). (#1 at 1.) The subpoenas seek production of documents and deposition testimony for use in multiple civil actions against Porsche in the German Regional and Higher Regional Courts of Stuttgart and Braunschweig, among others, by large investors (the German actions). (#2 at 5.) The plaintiffs in the German actions claim that Porsche had knowledge of emissions modifications in certain vehicles that qualified as unlawful “defeat devices” under U.S. law. (#3 at 3.) The German plaintiffs allege that Porsche's omissions and misstatements impacted the price of Porsche's “preferred shares, which are publicly traded on German stock exchanges, ” and that they “suffered losses for which they now seek recovery.” (#2 at 3.)

         The German actions involve approximately 200 separate legal proceedings, including a “Model Case” in Braunschweig, which is somewhat similar to class action litigation in the United States, and an individual action filed by Craig Broomley “exclusively acting as Trustee of John Hancock Variable Insurance Trust, John Hancock Funds II[, ] and John Hancock Funds III” (the Hancock plaintiffs) in Stuttgart. Id. at 5, 9-10; #2-1 at 3-4. The Hancock plaintiffs have claimed damages of approximately 5.75 million euros in their individual action. (#3 at 3 ¶ 6.)[2]

         On April 9, 2019, District Court Judge Leo Sorokin entered an order granting Porsche's application. (#11 at 1-2.) The subpoenas were served on April 16 and 17, 2019. (#13 at 1.) On June 18, 2019, the Hancock entities filed the present motion. (#21.) Porsche opposed. (#29.) Judge Sorokin referred the Hancock entities' motion to this court. (#31.) On September 17, 2019, after the parties filed responsive briefs, oral argument was held. (#54.) The court took the matter under advisement and ordered the parties to file a joint memorandum setting out the discovery that had already been provided by the Hancock entities, which they did. (#55 at 58, ll. 14-16; 59, ll. 7-8; #57 (joint memorandum).)

         II. Facts.

         Beginning in April 2016, various investors in Porsche securities (the German plaintiffs) began to file suit against Porsche in Germany, alleging securities fraud arising from Porsche's “purported failure to disclose or the inaccurate disclosure of emissions modifications in certain diesel vehicles manufactured by Volkswagen AG . . . .” (#2 at 5.) According to Porsche, the German plaintiffs contend that Porsche “failed to issue a purportedly required ad hoc notification disclosing the diesel issue” and as a result, is subject to liability under section 37b of the German Security Trading Act. Id. at 8-9 (citing #3 at 5 ¶ 11). “Plaintiffs also assert tort claims under sections 823 and 826 of the German Civil Code based on [Porsche's] alleged failure to issue an ad hoc notification and based on alleged misrepresentations in financial reports regarding the diesel issue. . . .” Id. at 9.

         Porsche now seeks discovery from the Hancock entities for use in both the Model Case in Braunschweig and the individual Hancock action in Stuttgart. (#55 at 43, ll. 11-13.) Porsche requests production of documents and Rule 30(b)(6) deposition testimony regarding “(1) accounting information concerning the sale and purchase of [Porsche and Volkswagen AG stock] shares and related securities with a value tied to [Porsche and Volkswagen AG shares], as well as relevant lending transactions in such shares and other securities; and (2) trading or investment strategies that involved [Porsche or Volkswagen] shares or related financial instruments.” (#2 at14-15.)[3]

         Porsche asserts that the information sought is relevant to three of its defenses in the Model Case and in the individual Hancock action. (#2 at 10 (citing #3 at ¶ 16).) First, “at least some of the transactions on which the German [p]laintiffs have based their claims are not legally cognizable, ” because “[a]s a matter of German law, a plaintiff may only claim damages with respect to transactions carried out after the time when [Porsche] should have released the allegedly required ad hoc notification.” Id. (citing #3 at 6 ¶ 13.) A further prerequisite to claiming damages with respect to these transactions under German law “is that the plaintiff must have continued to hold these shares at the time the relevant inside information was disclosed, which in the German [a]ctions was September 18, 2015, when the U.S. Environmental Protection Agency published its notice of violation” to Volkswagen AG regarding the diesel issue. (#3 at 6 ¶ 13.) The period between the “allegedly required ad hoc disclosure and September 18, 2015, is referred to as the ‘disinformation period.'” (#2 at 11 (citing #3 at 6 ¶ 13).) Porsche asserts that the plaintiffs “sold certain shares on which their claims are predicated during the disinformation period, and therefore did not hold those shares at the time the relevant inside information was released, as required to claim damages.” Id.

         Porsche has also asserted as a defense “that the German [p]laintiffs have overstated their alleged damages by accounting only for certain transactions in [Porsche] shares, even though those transactions . . . were likely part and parcel of broader trading strategies, including hedging, that (in whole or in part) offset the purported losses associated with the transactions in [Porsche] shares.” Id. (citing #3 at 6 ¶ 14). Therefore, the benefits the German plaintiffs received from related transactions, such as hedging, “must be deducted from the amount of damages claimed.” Id.[4]

         Finally, Porsche maintains that the German plaintiffs have not met the reliance element required to sustain their tort claims, because their Porsche “share transactions were part of broader trading strategies that . . . would have incentivized the German [p]laintiffs to conduct transactions regardless of any diesel issue by” Porsche. Id. at 12 (citing #3 at 7 ¶ 15). Put differently, Porsche seeks to establish that the Hancock plaintiffs did not rely on any alleged statements from Porsche required to establish securities fraud, but rather, purchased or sold the Porsche or Volkswagen AG shares as part of a “unified hedging strategy[, ]” and “were going to hedge and sell no matter what, regardless of what information should have been disclosed.” (#55 at 42, ll. 4-7; 43, ll. 2-4.)

         Porsche's requests are based in part on certain comments made by the Higher Regional Court of Braunschweig[5] at a hearing on November 26, 2018, where the court requested that the parties provide “further input” on damages issues Porsche raised, “including providing practical examples” of how to calculate the damages. (#2 at 12 (citing #3 at 8 ¶ 17).) With regard to the issue regarding the timing of the purchase of the shares, which may also relate to liability (#55 at 42, ll. 8-14), the German court made a preliminary determination that the plaintiffs “bear the burden of pleading and proving that they did not resell the particular shares that form the basis of their claim during the disinformation period.” (#2 at 12-13 (citing #3 at 8 ¶ 18).) Conversely, with regard to tort claims, the court indicated that plaintiffs could claim losses for “any share purchased during the ‘disinformation period' without needing to affirmatively demonstrate that the share was held until at least September 18, 2015.” Id. (citing #3 at 8-9 ¶ 19).) However, it invited Porsche “to establish . . . a more suitable way to allocate purchase and sale transactions within the ‘disinformation period'” by presenting “examples based on actual data[.]” Id.

         As to Porsche's second claim, the court stated its preliminary view “that only closely related transactions should be considered for a deduction[, ]” and “in the absence of a specific link between different share transactions, only the sale and purchase of the same share would be sufficiently related.” Id. at 13 (citing #3 at 9 ¶ 20). However, as it did with Porsche's first claim, the court “requested practical examples that demonstrate the effect of accounting for transactions other than the purchase and sale of the [Porsche] shares on which the plaintiffs based their claims.” Id. (citing #3 at 9 ¶ 20). Porsche contends that, based on the examples it provides, “the court may decide that certain types of related transactions should be deducted from the claimed damages.” Id.

         Regarding Porsche's third claim, concerning reliance, the court determined that, while “the German [p]laintiffs would not be obligated to account for all possible related transactions included in their investment strategy in order to meet their burden, ” Porsche “would be able to offer related transactions to disprove the existence of reliance.” Id. at 14 (citing #3 at 9-10 ¶ 21).) Porsche maintains that, like “the practical examples that the [German court] requested to inform its consideration of the appropriate burdens with respect to the sale and purchase allocation and deduction of related transactions, information about the German [p]laintiffs' investment strategies will be relevant to the court's continuing evaluation of the appropriate burden with respect to reliance.” (#3 at 10 ¶ 21.)

         In response to this court's order for the parties to set out what discovery the Hancock plaintiffs already had produced in the German actions, Porsche indicated that the Hancock plaintiffs had produced transactional data, comprised of the date, quantity, and price for transactions in Porsche shares, “as well as the name of the supervising trust, fund name and number, transaction type (buy or sell), currency, and security ([Porsche] preferred shares, in all cases).” (#57 at 3.) Porsche contends that, although the Hancock entities have since offered to produce corresponding Volkswagen AG transactional data, they have still “not agreed to produce information describing their investment strategies with respect to [Porsche or Volkswagen AG] shares, or data concerning other related transactions needed by [Porsche] to support [this] defense.” Id. at 6.

         III. Analysis.

         A. The law pertaining to 28 U.S.C. § 1782.

         Section 1782(a) provides that a federal district court may order a person residing or found in the district to give testimony or produce documents for use in a proceeding in a foreign or international tribunal, upon the application of any interested person. 28 U.S.C. § 1782(a); Intel Corp. v. Advanced Micro Device, Inc., 542 U.S. 241, 246 (2004). Thus, to obtain discovery under § 1782, as a preliminary matter, a petitioner must meet three statutory requirements: (1) the order must be issued by the district court of the district in which the respondent resides or is found; (2) the discovery must be for use in a proceeding in a foreign or international tribunal; and (3) the application must be made by an interested person. Chevron Corp. v. Shefftz, 754 F.Supp.2d 254, 260 (D. Mass. 2010). The material sought cannot be protected by “any legally applicable privilege.” 28 U.S.C. § 1782(a); In re Schlich, 893 F.3d 40, 46 (1st Cir. 2018). The party seeking discovery bears the burden of establishing that § 1782's statutory requirements are met. In re Schlich, 893 F.3d at 49.

         “Even if a court is authorized to grant discovery under § 1782, it is not required to do so.” Chevron, 754 F.Supp.2d at 260. Rather, “courts must exercise their discretion under § 1782 in light of the twin aims of the statute: ‘providing efficient assistance to participants in international litigation and encouraging foreign countries by example to provide similar assistance to our courts.'” In re Schlich, 893 F.3d at 46-47 (quoting Intel, 542 U.S. at 252). After a court determines that the statutory requirements of § 1782 are met, it evaluates the following discretionary factors: (1) “whether the person from whom discovery is sought is a party to the foreign proceeding, in which case ‘the need for § 1782(a) generally is not as apparent'”; (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 U.S. federal-court judicial assistance”; (3) “whether the request ‘conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States'”; and (4) “whether the request is ‘unduly intrusive or burdensome' to the extent that it should either be ‘trimmed' or rejected outright.” Id. at 47 (quoting Intel, 542 U.S. at 264-65). The First Circuit has noted that it does “not see the factors as creating a ‘burden' for either party to meet, but rather as considerations to guide the . . . court's decision” about whether to allow discovery. Id. at 50.

         In addition to the discretion afforded by §1782 to limit the scope of discovery, Rule 26 of the Federal Rules of Civil Procedure allows the court to narrow discovery requests. In re Apotex. Inc., No. M12-160, 2009 WL 618243, at *3 (S.D.N.Y. Mar. 9, 2009). Rule 26(b) states that “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case[.]” Fed.R.Civ.P. 26(b)(1). “Information within the scope of discovery need not be admissible in evidence to be discoverable.” Id. Because “discovery itself is designed to help define and clarify the issues[, ]” Rule 26 must be “construed broadly to encompass any matter that bears on, or that reasonably could lead to other matters that could bear on, any issue that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) (citation omitted).

         B. The statutory requirements are met.

         It is not disputed that the Hancock entities are “found” in the District of Massachusetts and that Porsche is an “interested person” pursuant to § 1782. Thus, the only question concerning the statutory requirements is whether the discovery Porsche seeks is “for use” in the German actions.

         The Hancock entities argue that the discovery requests fail to meet § 1782's “for use” requirement because the documents sought are irrelevant to the German actions. (#22 at 8-9.) See In re Schlich, 893 F.3d at 52 (“a request for discovery under § 1782 that is plainly irrelevant to the foreign proceeding will fail to meet the statutory ‘for use' requirement, and must be denied before the court reaches the discretionary Intel factors”). First, the Hancock entities argue that Porsche's proposed definition of a “relevant security” is too broad, because it would include “any derivatives or options trading, or any hedging contract, with some remote connection to any type of Volkswagen or Porsche securities . . . .” (#22 at 9.) According to the Hancock entities, because many of the securities they “purchased or sold are part of some comprehensive strategy to have a balanced and diversified portfolio, ” the information Porsche seeks “could potentially involve nearly every security traded during a four-year period anywhere in the world.” Id. at 12. Second, Porsche's requests are irrelevant because German courts have held that “gains from transactions in other securities do not offset recoverable damages under . . . Germany's Securities Trading Act[.]” Id. (citations omitted).

         These arguments are flawed in several respects. Although the Hancock entities make compelling arguments as to why Porsche's subpoenas are overbroad and unduly burdensome under Intel's fourth factor, Porsche's requests are clearly relevant to the issue of damages and, potentially, liability, for the reasons Porsche detailed in its memorandum in support of its application. Id. at 10-15. The Higher Regional Court in Braunschweig specifically requested that the parties provide “further input” on the damages issues Porsche raised, “including practical examples” of how to calculate the damages. Id. at 12. While the German court may ultimately reject Porsche's proposed damages calculations in the Model Case, it is well-settled that “[p]etitioners are not required to show that the information they seek would be discoverable or admissible in [foreign] litigation] in order to satisfy” the “for use” requirement. Minis v. Thomson, No. 14-91050-DJC, 2014 U.S. Dist. LEXIS 54220, at *6 (D. Mass. Apr. 18, 2014) (citing Intel, 542 U.S. at 260-62, and Chevron, 762 F.Supp.2d at 251) (discovery petitioners sought was “for use” in the foreign proceedings when they made a claim for adverse possession and sought information regarding ownership of the land at issue); see also Sandra Holding Ltd. v. Fawzi Musaed Al Saleh, No. 18-mc-91406-PBS, 2019 U.S. Dist. LEXIS 116920, at *7 (D. Mass. Jul. 15, 2019) (discovery “for use” pursuant to § 1782 when petitioner had “stated [an] intent to pursue a legal action and articulated a facially legitimate reason for pursuing . . . discovery”).

         Relatedly, the Supreme Court made clear in Intel that the foreign proceeding only needs to be within “reasonable contemplation[, ]” rather than “pending” or “imminent.” Intel, 542 U.S. at 247. Thus, the discovery Porsche seeks may also be relevant in determining damages in the Hancock plaintiffs' individual action in Stuttgart. Porsche's counsel correctly pointed out at the September 17th hearing that, even if the Hancock plaintiffs' individual action in Stuttgart is stayed pending the resolution of the Model Case, “that does not preclude Porsche from submitting evidence to that court.” (#55 at 43, ll. 20-23.) See Chevron, 754 F.Supp.2d at 260 (evidence was for use in foreign proceeding when the foreign court had “yet to issue an order closing the case to the submission of new evidence”); Mees v. Buiter, 793 F.3d 291, 301 (2d Cir. 2015) (petitioner had satisfied § 1782's “for use” requirement by showing that the materials she sought were “to be used at some stage of a foreign proceeding that was within reasonable contemplation at the time of the proceedings below”).

         For the above reasons, the court finds that the discovery Porsche seeks is “for use” in the German actions, and the statutory requirements are met.

         C. The Intel discretionary factors weigh in favor of allowing discovery.

         1. The information sought is not within the German court's jurisdictional reach.

         When the person from whom discovery is sought is a participant in the foreign proceeding, “the need for § 1782(a) aid is not as apparent as it ordinarily is when [the] evidence is sought from a nonparticipant in the matter arising abroad.” Intel, 542 U.S. at 264. Because the foreign tribunal has jurisdiction over those appearing before it, it can order them to produce evidence. Id. “In contrast, nonparticipants in the foreign proceeding may be outside the foreign tribunal's jurisdictional reach; hence, their evidence, available in the United States, may be unobtainable absent § 1782(a) aid.” Id.

         Whether the target of the subpoena is a participant in the foreign action, however, is only one part of the inquiry, because the critical question is whether the information targeted is within the foreign tribunal's jurisdictional reach. See Chevron, 754 F.Supp.2d at 261 (first Intel factor weighed “heavily” in favor of granting discovery where the respondent resided outside foreign courts' jurisdiction and foreign courts therefore could not order the discovery petitioner sought in his § 1782 action); In re Penner, No. 17-CV-12136-IT, 2017 U.S. Dist. LEXIS 193457, at *7 (D. Mass. Nov. 22, 2017) (first Intel factor weighed in favor of petitioners when respondents appeared to be outside foreign court's jurisdiction); In re Application of OOO Promnesfstroy, Misc. No. M 19-99 (RJS), 2009 U.S. Dist. LEXIS 98610, at **14-15 (S.D.N.Y. Oct. 15, 2009) (first Intel factor weighed in favor of the respondent, although he himself was not a party to the foreign proceeding, because the “vast majority” of the petitioner's § 1782 application covered documents that were within the possession of the parties to the foreign proceeding).

         The Hancock entities concede that they are not parties to the German actions, but they argue that they are “considered participants” in the German actions because they are corporate affiliates of the Hancock plaintiffs (#36 at 5 n.1), and, in fact, they refer to themselves as the “Hancock Class Members” throughout their pleadings. See, e.g., id.; #22 at 17 n.6. They assert that the information Porsche seeks is available to the German court because if the Hancock entities, “as investment managers to their clients/affiliates [the Hancock plaintiffs in the foreign proceedings], have their clients' transactional data, investment strategies, and information regarding their decision-making, the same information would, by definition, be in their clients' possession, custody[, ] or control, as well, because as clients they controlled their agents.” (#22 at 21.)

         The court does not accept this argument, because first, it is not clear to the court that the Hancock entities are class members to the action in Germany or that they are essentially the same as the Hancock plaintiffs. See In re Porsche Automobil Holding SE, 15-mc-417 (LAK), 2016 WL 702327, at **7-8 (S.D.N.Y. Feb. 18, 2016) (rejecting the argument that a party's investment manager and general partner constitute the same entity as the party in the context of a foreign hearing with respect to a § 1782 application.) Second, most damaging to the Hancock entities' argument, the plaintiffs in the Braunschweig Model Case have told the German court that they do not possess the information Porsche seeks, (#3 at 13 ¶29), and the Hancock entities' counsel suggested at oral argument before this court that the Hancock plaintiffs likely do not have the information. (#55 at 49, ll. 12-21.)

         A recent, related case in the Southern District of New York is instructive. In In Re: Ex Parte Application of Porsche Automobil Holding SE, No. 1:19-mc-00166-RA-SDA (S.D.N.Y. Jun. 25, 2019) (the Elliott action), District Court Judge Ronnie Abrams considered whether Porsche was entitled under § 1782 to the same categories of discovery Porsche requests in this matter, from “certain investment advisers and fund managers of plaintiff funds [the Elliott respondents] that are suing Porsche in German proceedings.” (#28-4 at 3, ll. 19-21 (transcript of hearing).) In a ruling from the bench on June 25, 2019, the court rejected the argument of the Elliot respondents that they were “close affiliates with parties in one of the German actions” and thus were effectively parties in that action. Id. at 34-35, ll. 24-3. Finding that the “respondents do not dispute that the German courts lack jurisdiction to order them to produce the information that [Porsche] seeks[, ]” Id. at 35, ll. 20-22, and rejecting the argument that investment managers and their clients are the same entities for purpose of the litigation, Id. at 36, ll. 11-17, the court found that the first discretionary factor weighed in favor of Porsche. Id. at 42, ll. 21-23. Ultimately, the court ordered the Elliott respondents to produce discovery, although the court narrowed the subpoena and ordered that the discovery be subject to a strict protective order. Id. at 42-43, ll. 21- 1.

         In sum, because the evidence Porsche seeks is not available absent this court's assistance, the first Intel ...

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