Luxshare, Ltd. v. ZF Auto. US, Inc.

• Decision Date: 01 July 2021
• Docket Number: Case No. 2:20-mc-51245
• Citation: 547 F.Supp.3d 682
• Parties: LUXSHARE, LTD., Petitioner, v. ZF AUTOMOTIVE US, INC., Gerald Dekker, and Christophe Marnat, Respondents.
• Court: U.S. District Court — Eastern District of Michigan

547 F.Supp.3d 682

LUXSHARE, LTD., Petitioner,

v.ZF AUTOMOTIVE US, INC., Gerald Dekker, and Christophe Marnat, Respondents.

Case No. 2:20-mc-51245

United States District Court, E.D. Michigan, Southern Division.

Signed July 1, 2021

Bradley Pensyl, Kendall Robert Pauley, Allen & Overy LLP, New York, NY, William R. Jansen, Michael G. Brady, Warner Norcross & Judd LLP, Detroit, MI, for Petitioner.

Herbert C. Donovan, Jonathan F. Jorissen, Brooks Wilkins Sharkey & Turco, PLLC, Birmingham, MI, Sean M. Berkowitz, Latham & Watkins, Chicago, IL, for Respondents.

ORDER OVERRULING OBJECTIONS TO MAGISTRATE JUDGE'S ORDER GRANTING IN PART AND DENYING IN PART RESPONDENTS’ MOTION TO QUASH [26]

LAURIE J. MICHELSON, UNITED STATES DISTRICT JUDGE

As a result of a business dispute involving hundreds of millions of dollars in potential damages, Luxshare, LTD intends to initiate, by the end of the year, an arbitration proceeding in Munich, Germany against ZF Automotive US, Inc. Luxshare seeks discovery for this foreign proceeding from ZF US and two of its senior officers who all reside in the Eastern District of Michigan. Luxshare has filed an application pursuant to 28 U.S.C. § 1782 seeking to serve subpoenas for the production of documents and testimony. In evaluating Luxshare's request, Magistrate Judge Anthony P. Patti reviewed the initial briefing, conducted an extensive hearing, requested supplemental briefing, thoroughly analyzed all of the relevant factors from the governing case, see generally Intel Corp. v. Advanced Micro Devices, Inc. , 542 U.S. 241, 124 S.Ct. 2466, 159 L.Ed.2d 355 (2004), and issued a 36-page opinion. Magistrate Judge Patti determined that some discovery was appropriate, but he significantly limited its scope. Now before the Court are Respondents’ objections to Magistrate Judge Patti's order. None of them reveal any legal error or abuse of discretion. The objections are OVERRULED.

I.

In August 2017, Luxshare, LTD purchased two business units from Michigan-based automotive parts supplier and manufacturer ZF Automotive US, Inc. for nearly a billion dollars. (ECF No. 1, PageID.9.) The two businesses were ZF US's Global Body Control Systems business and ZF US's Radio Frequency Electronics business (collectively, the "BCS-RFE Businesses"). (Id. ) The terms of the deal were set forth in a Master Purchase Agreement. (Id. ) The deal closed in April 2018.

Luxshare claims that it only recently discovered that, during the due diligence period and prior to the closing on the transaction, ZF US fraudulently concealed certain material facts and developments concerning the significant decline in business relationships with, and expected purchases from, several of the most important customers of the BCS-RFE Businesses (i.e., FCA, Ford, and GM). (Id. at PageID.9–10.) This alleged fraud, claims Luxshare, inflated the purchase price it paid for the BCS-RFE Businesses by hundreds of millions of dollars over the amount it would otherwise have paid for them. (Id. at PageID.10.)

The parties’ Master Purchase Agreement provides that "[a]ll disputes arising under or in connection with this Agreement ... shall be exclusively and finally settled by three (3) arbitrators in accordance with the Arbitration Rules of the German Institution of Arbitration e.V. (DIS), including the Supplementary Rules for Expedited Proceedings ...." (ECF No. 6-2, PageID.266.) Also, "[t]he place of the arbitration shall be Munich, Germany." (Id. )

Luxshare intends to bring claims with a DIS arbitral tribunal to recover for the losses it claims to have suffered as a result of ZF US's alleged wrongful conduct. (ECF No. 1, PageID.10–11.) Luxshare has until the end of 2021 to file for arbitration. (ECF No. 13, PageID.335.)

But prior to doing so, and because the arbitration proceedings will be expedited, Luxshare seeks to obtain discovery from ZF US and two of its senior officers, Gerald Dekker (retired) and Christopher Marnat, pertaining to the concealment of information concerning the lost sales volumes. So on October 16, 2020, Luxshare filed an ex parte Application seeking the Court's permission to obtain this discovery pursuant to 28 U.S.C. § 1782. (ECF No. 1.) Attached to the Application are a subpoena for documents from ZF US and subpoenas duces tecum for the depositions of Dekker and Marnat. (ECF Nos. 1-2, 1-3, 1-4.) This Court granted Luxshare's ex parte application on October 22, 2020. (ECF No. 3.) Luxshare served the § 1782 subpoenas on respondents the next day. (ECF No. 13, PageID.331.)

Respondents then moved to quash (ECF No. 6), which Luxshare opposed (ECF No. 13). The motion was referred to Magistrate Judge Anthony P. Patti. He conducted a hearing and then requested supplemental briefing. Judge Patti ultimately entered an order granting in part and denying in part the motion to quash. (ECF No. 26.) Judge Patti authorized discovery but limited it as follows: document searches in only the emails of Marnat and one other custodian, and documents contained in a centrally maintained shared drive, between December 2016 and April 2018; modifications to certain definitions in the subpoenas; and a deposition of either Marnat or Dekker, but not both. Id. Respondents oppose the production of any discovery and thus, have filed timely objections. (ECF No. 27.)

II.

The parties dispute whether a magistrate judge's ruling on an application brought under 28 U.S.C. § 1782(a) constitutes a nondispositive order requiring plain error review or a dispositive order requiring de novo review. 28 U.S.C. § 636(b)(1)(A) ; Fed. R. Civ. P. 72(a). "Neither the Supreme Court nor any circuit court appears to have squarely addressed this issue. Most lower courts, however, have found that such rulings are not dispositive and are therefore subject to review only for clear error." In re Hulley Enters. , 400 F. Supp. 3d 62, 71 (S.D.N.Y. 2019) (citing cases). As one court in this Circuit has likewise explained, "[t]he majority of persuasive authority on this topic concludes that a magistrate judge's ruling on a motion for discovery under 28 U.S.C. § 1782(a) is nondispositive." JSC MCC EuroChem v. Chauhan , No. 17-00005, 2018 WL 3872197, at *1, 2018 U.S. Dist. LEXIS 138075, at *2 (M.D. Tenn. Aug. 15, 2018) (citing cases).

The Court sees no reason to deviate from this majority view or to treat this matter differently from other discovery disputes. "In a § 1782 proceeding, there is nothing to be done ‘on the merits.’ Section 1782 empowers a district court to order a person residing within its district 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.’ The only issue before the district court is discovery; the underlying litigation rests before a foreign tribunal." In re Republic of Ecuador , 735 F.3d 1179, 1182 (10th Cir. 2013). Thus, the Court will uphold Magistrate Judge Patti's order unless it is "clearly erroneous or contrary to law." United States v. Curtis , 237 F.3d 598, 603 (6th Cir. 2001).

A ruling is " ‘clearly erroneous’ when, although there is evidence to support it, the reviewing court ... is left with the definite and firm conviction that a mistake has been committed." Hagaman v. Comm'r of Internal Revenue , 958 F.2d 684, 690 (6th Cir. 1992) (citation omitted). A legal conclusion is "contrary to law ‘when it fails to apply misapplies relevant statutes, case law, or rules of procedure.’ " Ford Motor Co. v. United States , No. 08-12960, 2009 U.S. Dist. LEXIS 81720, 2009 WL 2922875, at *1 (E.D. Mich. Sept. 9, 2009) (citation omitted). Relatedly, in deciding discovery disputes, a magistrate judge is entitled to the same broad discretion as a district judge and his order is overruled only upon a finding of an abuse of discretion. State Farm Mutual Auto. Ins. Co. v. Pointe Physical Therapy, LLC , 255 F. Supp. 3d 700, 703 (E.D. Mich. 2017) report and recommendation adopted No. 14-11700, 2017 U.S. Dist. LEXIS 113535, 2017 WL 3116261 (July 21, 2017) ; Bill Call Ford, Inc. v. Ford Motor Co. , 48 F.3d 201, 209 (6th Cir. 1995). An abuse of discretion exists when the court applies the wrong legal standard, misapplies the correct legal standard, or relies on clearly erroneous findings of fact. First Tech. Safety Sys., Inc. v. Depinet , 11 F.3d 641, 647 (6th Cir. 1993).

III.

The purpose of an application under 28 U.S.C. § 1782 is to obtain federal-court assistance in gathering evidence and testimony for use in foreign tribunals. Intel Corp. v. Advanced Micro Devices, Inc. , 542 U.S. 241, 247, 124 S.Ct. 2466, 159 L.Ed.2d 355 (2004). To invoke § 1782, an applicant must first meet certain threshold criteria: (1) the person from whom discovery is sought "resides or is found" within the district; (2) the discovery is "for use in a proceeding before a foreign or international tribunal"; and (3) the application is made by an "interested person." 28 U.S.C. § 1782(a).

If these statutory prerequisites are met, the district court is authorized, but not required, to permit discovery. Intel , 542 U.S. at 264, 124 S.Ct. 2466. In other words, § 1782 "leaves the issuance of an appropriate order to the discretion of the court." (Id. at 260–61.) The following ( Intel ) factors guide the Court's exercise of its discretion: (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, and the receptivity of the agency abroad to federal-court judicial assistance; (3) whether the application conceals an attempt to circumvent foreign proof-gathering restrictions or other policies; and (4) whether the discovery sought is unduly intrusive or burdensome. Id. at 264-65, 124 S.Ct. 2466. The decision to grant an application is made in light of the "twin aims" of § 1782 : "providing efficient means of assistance to participants in international litigation and encouraging foreign countries by example to provide similar assistance to...