In re Application for an ORDER FOR Judicial Assistance in a Foreign Proceeding in the LABOR COURT OF BRAZIL
Marcel Fleischmann, and Eduardo
v.
Mortari, Jr., Petitioners,
v.
McDonald's Corporation, Respondent.
United States District Court, N.D. Illinois, Eastern Division.
*1021 *1022 *1023 John Thomas Moran, John T. Moran & Associates, Chicago, IL, Counsel for Petitioners.
Mark L. Shapiro, Christopher W. Carmichael, Holland & Knight LLC, Chicago, IL, Jonathan Christian Bunge, Kirkland & Ellis LLP (Chicago), Chicago, IL, Counsel for Respondents.
MEMORANDUM OPINION AND ORDER
DENLOW, United States Magistrate Judge.
Pursuant to 28 U.S.C. ß 1782(a), Petitioners Marcel Fleischmann and Eduardo V. Mortari, Jr. applied for discovery from McDonald's Corporation for use in two Brazilian lawsuits. McDonald's objects. In addition, McDonald's moved to seal the application. For the reasons stated herein, the application for discovery is granted, the motion to seal is denied, and discovery shall proceed under the limitations imposed by this order.
I. BACKGROUND FACTS
A. BRAZILIAN LITIGATION
McDonald's Comercio de Alimentos Ltda. ("McCal") is a Brazilian, wholly-owned *1024 subsidiary of McDonald's Corporation ("McDonald's") whose headquarters are in the Court's district. Until May 2005, McCal employed Marcel Fleischmann ("Fleischmann") as its Chief Executive Officer and Eduardo V. Mortari, Jr. ("Mortari") (collectively, "Petitioners") as its Financial Director.
Before Petitioners were fired, McCal hired a consulting company, RPN Consultoria, Comercio e Representacoes, Ltda., ("RPN"), to help McCal with a tax issue. McCal allegedly used RPN to bribe the Secret·rio of the Brazilian Internal Revenue Service ("Brazilian IRS") for a favorable tax ruling. The Office of the Federal Prosecutor of the Federal District of Brasilia sued McCal, Fleischmann, Mortari, the Secretario, and other persons, but not McDonald's, over the alleged bribe ("Federal Lawsuit").
Shortly after the Federal Lawsuit was filed, McCal fired Petitioners "for cause," claiming that Petitioners obstructed and lied to McCal investigators and the Brazilian IRS. Petitioners contend, however, that McCal fired them to shield McCal and McDonald's from Brazilian and American authorities. Because Petitioners were fired "for cause," McCal denied them severance pay and other benefits.
Fleischmann sued McCal in the 68th Labor Court of the Capital of Sao Paulo and Mortari sued McCal in the 72nd Labor Court of the Capital of Sao Paulo (singularly, or collectively, the "Labor Court"). They are each seeking a declaration that they did not commit a serious offense justifying their dismissals for cause. They also seek damages from McCal including severance pay and other benefits. In their claims, Petitioners contend that Mc-Donald's approved the hiring of RPN and that McDonald's has hired other consulting companies to lobby and bribe the governments of Brazil and other Latin American countries.
At Fleischmann's request, the Labor Court issued a Confidentiality. Order in his case on February 22, 2006. After Petitioners filed their Application for Discovery in this Court, McCal sought a Confidentiality Order for Mortari's case in the Labor Court. The Labor Court denied McCal's request on September 25, 2006. Fleischmann's trial is in the latter stages and the parties anticipate a ruling soon; Mortari's trial is scheduled to begin before 2007.
B. PROCEDURAL POSTURE
On August 18, 2006, Petitioners filed in this Court an Application for an Order for Discovery for Use in Proceedings in a Foreign Tribunal (the "Application"). The Application seeks discovery under 28 U.S.C. ß 1782(a). Specifically, it seeks interrogatories, document production, and depositions of McDonald's employees. The subject matter it seeks to discover is wide, and includes personnel files, the decision to fire Petitioners, McDonald's termination policies, franchise issues, policies concerning hiring consulting companies or lobbying firms, the scope of authority that McDonald's delegated to Petitioners, tax issues, employee benefits, compliance with specific American laws, accounting audits, insurance claims, and the retention of RPN. The Application includes a declaration, translated from Portuguese, by Jose Augusto Rodrigues Junior ("Rodrigues"), the Brazilian attorney representing Petitioners in the Labor Court, which contains facts about the cases and legal analysis of Brazilian law.
McDonald's included in its response a declaration, translated from Portuguese, by Arnaldo Pipek ("Pipek") and Jose Cassio de Barros Penteado Filho ("Cassio"), the attorneys representing. McCal in the Labor Court; it contains facts about the *1025 cases and legal analysis of Brazilian law. McDonald's also included the translated and untranslated Labor Court orders related to the confidentiality requests. When Petitioners replied to the response, they included a second declaration and translation from Rodrigues that contained additional facts and legal analysis. Petitioners also attached a sworn affidavit from Keith S. Rosenn, a University of Miami School of Law professor, which described Professor Rosenn's expertise on Brazilian law and contained an analysis of Brazilian laws in the context of Brazilian history.
On October 11, 2006, McDonald's filed a brief in support of its Motion to Seal Petitioner's Application and to File Further Documents Under Seal with this Court. McDonald's included a second declaration and translation from Pipek and Cassio, which contained additional facts and legal analysis. Petitioners filed a response opposing the motion. In addition to its reply brief, McDonald's provided the declaration, translated from Portuguese, by Marcelo Pimental ("Pimental"), an attorney in Brazil, and third declarations from Pipek and Cassio, which analyze Brazilian law.
Oral arguments were heard by the Court on October 31, 2006, and. November 15, 2006.
II. APPLICATION FOR AN ORDER FOR DISCOVERY
Petitioners' Application for an Order for Discovery was made pursuant to 28 U.S.C. ß 1782(a). The Court will examine the purpose and history of the statute, the statutory requirements the Application must meet before a court may grant discovery, and the factors a court should consider when deciding whether' to use its discretion to grant the Application. The statute, states:
The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. By virtue of his appointment, the person, appointed has power to administer any necessary oath and take the testimony or statement. The order may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or the international tribunal, for taking the testimony or statement or producing the document or other thing. To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or other thing produced, in accordance with the Federal Rules of Civil Procedure.
A person may not be compelled to give his testimony or statement or to produce a document or other thing in violation of any legally applicable privilege.
28 U.S.C. ß 1782(a).
A. PURPOSE AND HISTORY OF THE STATUTE
The statute's twin aims are "providing efficient assistance to participants in international litigation and encouraging foreign countries by example to provide similar assistance to our courts." Intel Corp. v. Advanced Micro Devices, Inc.,
Through legislative changes, the statute has allowed more liberal discovery over time. See, e.g., S.Rep. No. 1580 (1964), as reprinted in 1964 U.S.C.C.A.N. 3782, 3788 ("The proposed revision of section 1782 . . . clarifies and liberalizes existing U.S. procedures for assisting foreign and international tribunals and litigants in obtaining oral and documentary evidence in the United States."). The first version of the statute, in 1855, authorized a foreign court to send a letter rogatory through diplomatic channels to ask an American court to examine a witness. Intel,
B. STATUTORY REQUIREMENTS
There are four required elements in 1782(a): (1) the requestor is a foreign tribunal, international tribunal, or an interested party; (2) the discovery is sought from a person residing or found in the district of the district court; and (3) the discovery is for use in a proceeding (4) in a foreign or international tribunal.[1] As discussed below, Petitioners have satisfied all four elements.
McDonald's concedes three of the elements. As plaintiffs in the Labor Court, Petitioners are interested parties; Mc-Donald's is found in the Court's district; and the Labor Court is a foreign tribunal. The parties disagree whether the discovery is "for use in a proceeding." The parties not only disagree whether the facts suggest that the discovery sought is "for use in" the Labor Court, but also disagree about what the legal standard is for this element. McDonald's requests this Court to deny the discovery because the Labor Court would have denied the discovery if the materials were in Brazil. Alternatively, McDonald's asks this Court to require that any material sought be admissible in the Labor Court. For the reasons below, the Court rejects both standards and adopts a standard based on Federal Rule of Civil Procedure 26(b)(1). Once the Court applies this standard, it is clear that the 1782(a) request meets the "for use in" statutory requirement.
I. Foreign-Discoverability Not Required
McDonald's requests the Court to deny the Application because Fleischmann did not seek leave of the Labor Court before initiating this Application and because the Labor Court does not permit the forms of discovery requested. These arguments fail because Intel specifically says that there is no foreign-discoverability rule.
Until Intel, there was a circuit split over whether the type of discovery sought in the United States under 1782(a) must be discoverable if it were located in the jurisdiction of the foreign tribunal. Intel,
2. Foreign Admissibility Not Required
McDonald's contends that "for use in" requires the discovery sought here to be admissible in Brazil, but has not cited any case law supporting this requirement. McDonald's advances three reasons the Labor Court will not admit the materials discovered here: (1) since Fleischmann's trial is nearly over, the discovery could not be admitted in his case; (2) since Mortari's case has progressed past the point where he could designate new documents or witnesses, the Labor Court would likely not allow him to introduce materials gathered here; and (3) since Brazilian courts primarily direct proof-gathering, this extrajudicial proof-gathering would likely not be admissible in the Labor Court. This Court need not analyze these three reasons individually because the Court holds that 1782(a) does not impose a foreign-admissibility rule.
The Supreme Court resolved the circuit split, over the foreign-discoverability rule in Intel but did not directly address whether there is a foreign-admissibility rule. Intel does, however, provide guidance that counsels against a foreign-admissibility rule, as discussed below. Furthermore, no lower court has required a foreign-admissibility rule and some courts have specifically rejected one. The Ninth Circuit, for example, announced that the court had "previously rejected a requirement regarding admissibility in the foreign tribunal" in the appeal that lead directly to the Supreme Court's Intel decision. Advanced Micro Devices, Inc., v. Intel Corp.,
In Intel, the Supreme Court rejected a foreign-discoverability rule as a matter of statutory construction, noting that Congress included a shield only for privileged material, and holding that "[i]f Congress had intended to impose such a sweeping restriction [of foreign-discoverability] on the district court's discretion, at a time when it was enacting liberalizing amendments to the statute, it would have included statutory language to that effect." 542 *1028 U.S. at 260,
A second reason against a foreign-admissibility rule, also based on statutory construction, is that some types of non-trial proceedings, which are included in 1782, must necessarily include inadmissible materials. See Intel,
The third reason against a foreign-admissibility rule is that courts should avoid construing foreign law. Section 1782(a) "does not direct United States courts to engage in comparative analysis" because comparisons are "fraught with danger" and "is slippery business." Intel
This is reinforced when one considers what a court must go through to construe foreign law. In the instant case, this Court has five translated declarations from four different Brazilian lawyers, an affidavit from an American law professor, translated and untranslated orders from the Labor Court, and hundreds of pages of Brazilian civil procedure Äî in Portugese. When faced with its own dueling experts, another American court wisely noted that "the battle of experts witnessed in this case is compelling evidence for abstention and deference." Id. at 180. A collateral issue such as discovery should rarely call for the amount of expert evidence that is usually necessary to interpret foreign law. It is self-evident that the most competent court to decide if materials gathered here are admissible in a foreign court is that same foreign court. John Deere, 754 F2d at 138 ("The Canadian tribunal must necessarily decide the use to which such evidence is put."); In re Trinidad and Tobago,
Finally, Intel recognized that Congress liberalized 1782(a) over the years.
This. Court holds that the history of the statute, the case law, and the prudent tendency of American courts to avoid construing foreign law support the plain meaning that "for use in" does not require that the discovery be admissible in the foreign proceeding.
3. "For Use In" Standard
Thus far, the Court has observed that "for use in" does not have a foreign-discoverability nor a foreign-admissibility requirement, but that leaves "for use in" without an affirmative standard, giving the Court the, opportunity to examine the issue. The Court needs an affirmative standard because Petitioners seek materials on a broad range of topics, and without an affirmative standard it is difficult to be sure that the discovery sought is "for use in" the Labor Court. To that end, the best standard to use is one that courts already use under the Federal Rules of Civil Procedure to manage discovery.
While no court has articulated an affirmative standard (other than the foreign-discoverability standard which, was rejected in Intel), the Third Circuit stated the following when it rejected a foreign-admissibility rule:
The reference in ß 1782 to the Federal Rules suggests that under ordinary circumstances the standards for discovery under those rules should also apply when discovery is sought under the statute. Consistent with the statute's modest prima facie elements and Congress's goal of providing equitable and efficacious discovery procedures, district courts should treat relevant discovery materials sought pursuant to ß 1782 as discoverable unless the party opposing the application can demonstrate facts sufficient to justify the denial of the application.
In re Bayer AG,
To be perfectly clear, the Court specifically excludes from the standard the sentence in Rule 26(b)(1) that reads: "Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." F.R.C.P. 26(b)(1). To require an applicant to show that discovery is reasonably calculated to lead to evidence admissible in the foreign proceeding would be tantamount to a foreign-admissibility *1030 rule. The reasons above that counsel against a foreign-admissibility rule are equally applicable to a "foreign-admissibility-lite" rule.
Prior to Intel, many courts used the foreign-discoverability rule as the standard of "for use in." After Intel, while considering a 1782(a) application, the District Court for the Southern District of New York noted that "[t]he information 'that [the applicant] seeks would be directly relevant to its defense of [the foreign] suit." In re Servicio Pan Americano de Proteccion, C.A.,
The Court now applies this standard to the instant case. In the Labor Court, Petitioners seek to prove that Mc-Donald's participated in the decision to fire them, that the reasons McDonald's has stated for firing them are pretextual, and that McDonald's has treated them differently from other similarly-situated employees. Requested topics such as Petitioners's personnel files and the reasons for the decision to fire Petitioners are clearly related to these claims. Therefore, the materials are "for use in" within the meaning of the statute, and all of the statutory requirements have been met.
C. DISCRETIONARY FACTORS
If an application meets the statutory requirements, the statute does not require the court to grant the application, but grants the court discretion. Intel,
1. McDonald's is Not a Participant in the Foreign Proceeding
The first factor recognizes that nonparties to a foreign proceeding, especially nonparties that are not found in the jurisdiction of the foreign proceeding, are often difficult for those proceedings to reach directly. Id. at 264,
*1031 McDonald's is not a party in the Labor Court. Its wholly-owned subsidiary, McCal, is the party. McDonald's contends that this case is similar to Schmitz v. Bernstein, Liebhard & Lifshitz, LLP,
McDonald's believes that the difference between McCal and McDonald's is merely "nominal" and anything addressed to Mc-Donald's should be viewed as addressed to McCal, and therefore, the Court should consider McDonald's a party in front of the Labor Court. This logic fails because Mc-Donald's and McCal are two separate legal entities and. McDonald's is merely the shareholder of McCal. McDonald's has not shown that it is a party before the Labor Court; nor has it shown that the Labor Court can order it to respond to discovery. See Norex Petroleum Ltd. v. Chubb Ins. Co. of Can.,
2. Petitioners Are Not Circumventing Any Labor Court Restrictions
McDonald's contends, that this 1782(a) Application is an attempt to circumvent the Brazilian proof-gathering process because Petitioners did not ask a Brazilian court for this discovery first and because the Confidentiality Order precludes Fleischmann from seeking discovery here without leave of the Labor. Court. These arguments lack merit.
"Relying on the plain language of the statute, this Court has also refused to engraft a quasi-exhaustion requirement onto section 1782 that would force litigants to seek information through the foreign or international tribunal before requesting discovery from the district court." In re Euromepa S.A.,
McDonald's suggests that Petitioners' failures to first seek this discovery in the Labor Court is somehow similar to the facts in Advanced Micro Devices, Inc. v. Intel Corp.,
McDonald's also suggests that this case is similar to In re Microsoft Corp.,
McDonald's lastly contends that the Labor Court will not be receptive to materials discovered here because the request was not made by letter rogatory. Mc-Donald's does not cite any material that supports this interpretation of Brazilian law. In the declaration provided by Mc-Donald's, Pimental contends that it is unlikely that the Labor Court will use the discovery, but he stops short of saying that all foreign discovery must be conducted by letters rogatory. On the other hand, Article 5(II) of the Brazilian Constitution, suggests that only an explicit law or ruling can preclude foreign discovery: "No one shall be compelled to do or refrain from doing something except by force of law." Professor Rosenn also cites American cases that support his observation that since the Brazilian letter rogatory process is slow, parties are instead using 1782(a). Furthermore, even McCal's Brazilian lawyers admit that a party may introduce evidence that comes into its possession after the trial has started. Therefore, letters rogatory cannot be the only acceptable procedure for foreign discovery,
McDonald's has not shown that the Labor Court would be unreceptive to materials discovered here under 1782(a). This is in stark contrast to both Intel and In re Microsoft where the EC explicitly stated that they did not want the help of the American courts. Intel,
3. The Discovery Sought is Not Unduly Intrusive or Burdensome
Finally, the court may reject the application if the discovery sought is unduly intrusive or burdensome. If a court orders discovery, then the Federal Rules. of Civil Procedure may govern discovery, so a court may use Rule 26 and other rules to protect respondents from specific requests that are unduly intrusive or burdensome. This factor directs the court to look at the requests in the aggregate to decide whether they are unduly intrusive or burdensome.
*1033 The materials that Petitioners seek are relevant to the claims and defenses before the Labor Court. McDonald's objects to some specific requests and the Court limits the scope of the discovery in Section III below. McDonald's should be able to collect the documents sought by Petitioners without undue burden. This factor therefore supports granting the discovery request. The factors all support granting the request, and the Court, grants the Application.
III. SCOPE OF DISCOVERY
Once the court has decided to grant discovery, the discovery is managed by the Federal Rules of Civil Procedure unless the court orders otherwise. 28 U.S.C. ß 1782(a). The statute authorizes the court to order a person "to give his testimony or statement or to produce a document or other thing." Id. This court interprets this language to include depositions and document production, but not interrogatories.
The Court orders the parties to follow the Federal Rules of Civil Procedure except where they are clearly not applicable (e.g., initial disclosures under Rule 26(a)(1)) and with the following restrictions:
First, Petitioners are only seeking materials in the United States; McDonald's shall not be obligated to produce materials located outside of the United States.
Second, discovery is limited to the following topics: (1) McDonald's Corporation's decision to terminate Petitioners, or McDonald's Corporation's explanation of its decision to terminate Petitioners; (2) McDonald's Corporation's knowledge of, or approval of, the retention and work of RPN; and (3) McDonald's Corporation's policies or codes of conduct concerning the kinds of activities in which Fleischmann or Mortari are alleged to have engaged.
Third, any materials discovered through this order may only be used in the two Labor Court lawsuits brought by Petitioners, specifically docket numbers XXXXXXXXXXXXXXXXXX and XXXXXXXXXXXXXXXX, respectively.
Fourth, McDonald's stipulates that all documents it produces are authentic; therefore, depositions to establish the authenticity of the produced documents are unnecessary.
Fifth, when McDonald's thinks that requested material is protected by privilege, then McDonald's shall use the applicable Federal Rules to object to the request.
Sixth, all documents shall be produced on an "as found" basis, but no later than December 7, 2006.
Seventh, the request in the Application for two depositions is denied without prejudice because Petitioners have not decided whether depositions will be necessary. Since McDonald's is a corporation, Petitioners should generally notice their deposition requests by topic using Rule 30(b)(6).
The court may order that discovery be taken "before a person appointed by the court." 28 U.S.C. ß 1782(a). The purpose and function of this person are the same as an officer named under Federal Rule of Civil Procedure 28. The parties have agreed to perform discovery without the assistance of an officer or to stipulate to a court reporter, if necessary.
IV. MOTION TO SEAL
McDonald's Corporation's motion to seal these proceedings asserts that the Confidentiality Order in Fleischmann's suit is "good cause" under Federal Rule of Civil Procedure 26(c). There is a strong presumption in the United States that documents filed in court be open to the public. *1034 See e.g. Union Oil Co. v. Leavell,
V. CONCLUSION
An Application for discovery under 1782(a) includes neither a foreign-admissibility rule nor a foreign-discoverability rule. The scope of discovery is substantially the same as Federal Rule of Civil Procedure 26(b)(1). Petitioners met all four of the statutory requirements and all three of the discretionary factors that support granting the discovery request. Therefore, this Court exercises its discretion and grants the request. The Federal Rules of Civil Procedure and the specific limitations in this order shall govern the discovery. The pleadings in this action will not be under seal.
For the reasons set forth in this opinion, Petitioners's request for discovery is granted, McDonald's motion to seal is denied, and discovery shall proceed according to the limitations imposed by this Memorandum Opinion and Order and the oral rulings made by the Court on October 31, 2006 and November 15, 2006, to the extent not inconsistent with this Opinion. All sealed documents shall be placed in the public file forthwith. All discovery provided by reason of the Application shall be used only in connection with the two cases filed by Petitioners in the Brazilian Labor Court.
NOTES
Notes
[1] Some courts evaluate the last two elements at the same time. See In re Microsoft Corp.,
[2] When the District Court held that there was not a foreign-admissibility rule in 1782(a), it also held that there was not a foreign-discoverability rule. The First Circuit reversed the case and announced a foreign-discoverability rule but did not directly address foreign-admissibility.
[3] Some district courts have separated these two sentences into two different factors. E.g., Advanced Micro Devices, Inc., v. Intel Corp.,