28 U.S.C. § 1782 Could Be a Powerful Tool for International Crypto Litigation
I. Introduction
28 U.S.C. § 1782 permits foreign litigants to obtain discovery in the United States in aid of foreign litigation. In the age of crypto litigation—arising from business disputes, scams, and/or fraud—litigants abroad could use Section 1782 as a means to trace crypto assets moving globally between crypto exchanges and wallets. Foreign litigants could also identify bad actors who held accounts with and/or provided KYC information (“know-your-customer”) to U.S. companies. There is already some precedent for this type of discovery in aid of crypto litigation. Thus, foreign counsel and foreign litigants should be aware of and explore this powerful discovery tool in the United States.
II. Standards for Discovery in the United States, Under 28 U.S.C. § 1782, for Use in Foreign Proceedings
“Under 28 U.S.C. § 1782, federal district courts may order the production of documents or testimony for use in a proceeding in a foreign or international tribunal so long as the disclosure does not violat[e] . . . any legally applicable privilege.’” Laggner v. Parsa, 3:22-MC-80328-WHO, , at *1 (N.D. Cal. Jan. 11, 2023). “Federal district courts may order discovery for use in a foreign proceeding under Section 1782 where three requirements are met: (1) the person from whom the discovery is sought resides or is found in the district of the district court where the application is made; (2) the discovery is for use in a proceeding in a foreign or international tribunal; and (3) the application is made by a foreign or international tribunal or any interested person.” In re Mert Karaman v. Turkcell Commc'n Services, 23-MC-80250-JSC, 2023 WL 8242122, at *2 (N.D. Cal. Nov. 28, 2023) (quoting Khrapunov v. Prosyankin, 931 F.3d 922, 925 (9th Cir. 2019)) (cleaned up).
However, “[e]ven if the statutory requirements are satisfied, a district court retains discretion to grant or deny a Section 1782 discovery application.” Id. The relevant factors are:
(1) whether the person from whom discovery is sought is a participant in the foreign proceeding, (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.
Id. at *3. When a court finds, under the fourth factor, that the discovery is unduly intrusive or burdensome, the discovery “may be rejected or trimmed.” Laggner, 2023 WL 163579, at *2.
As to the appropriate procedure, “[a]pplications made under 28 U.S.C. § 1782 are typically considered on an ex parte basis since parties will be given adequate notice of any discovery taken pursuant to the request and will then have the opportunity to move to quash the discovery or to participate in it.” Laggner, 2023 WL 163579, at *2 (internal quotations omitted). “Consequently, orders granting § 1782 applications typically only provide that discovery is authorized, and thus the opposing party may still raise objections and exercise its due process rights by challenging the discovery after it is issued via a motion to quash, which mitigates concerns regarding any unfairness of granting the application ex parte.” Id.
III. The Use of Section 1782 Discovery in Crypto Litigation
In limited instances to date, foreign litigants have used Section 1782 to obtain discovery in aid of foreign disputes involving cryptoassets. In Laggner v. Parsa, the plaintiff, a shareholder and former board member of Uphold Ltd., sought discovery in aid of a petition filed in the Grand Court of Cayman to dissolve Uphold Ltd. See Laggner v. Parsa, 2023 WL 163579. The court granted the Section 1782 application and permitted the plaintiff to serve subpoenas for documents and deposition testimony from two individuals and two entities found within the Northern District of California. Id.
In Turkcell Commc’n Services, the 2nd Consumer Court of Ankara, Türkiye sought discovery from Google in the United States. In re Mert Karaman v. Turkcell Commc'n Services, 23-MC-80250-JSC, 2023 WL 8242122, at *1 (N.D. Cal. Nov. 28, 2023). In the Turkish case, the plaintiff alleged that criminals stole his crypto assets by intercepting SMS text messages serviced by Defendant Turkcell Communication. Id. The court granted the Section 1782 application and permitted discovery of Google, LLC’s information and documents related to any IP address(es) linked to changes to the plaintiff’s Gmail passwords. Id.
This limited precedent suggests that Section 1782 could be a powerful, albeit underutilized, tool in international crypto litigation. If, for example, a civil defendant is accused in a foreign tribunal of stealing or converting the plaintiff’s cryptoassets, the plaintiff could seek Section 1782 discovery from any relevant third-party crypto exchange or crypto service provider found in the United States. Relying on that discovery, the plaintiff could potentially trace the stolen cryptoassets and then seek injunctive relief to freeze or otherwise secure those assets. Through that discovery, the plaintiff might also identify potentially liable parties other than the foreign defendants. Simply put, the expansive discovery traditionally allowed in U.S. courts could act as a potent device for foreign victims of crypto scams and fraud.
Dynamis LLP has the knowledge and experience to adeptly employ Section 1782 to seek discovery for litigants in foreign tribunals. Whether in crypto litigation or other complex litigation, Dynamis LLP can act as U.S. counsel for foreign lawyers and foreign clients seeking documents or testimony from third-party entities or individuals that are subject to personal jurisdiction in the United States.