Schmitz v. Bernstein Liebhard & Lifshitz, Llp.

• Decision Date: 20 July 2004
• Docket Number: No. 03-7556.,03-7556.
• Citation: 376 F.3d 79
• Parties: Michael SCHMITZ, Christian Bohling, Katrin Howe, Peter Howe, Thomas Ostermann, Claudia Malm-Ostermann, Anne Schieckel, Christine Shieckel, Werner Schmitz, Irene Schulze, Ralf Schulze, Rolf Keeve, Helga Zechmeister, Bernd Collin, Andreas Lange, Gabrielle Thomas, Anna Waldmann, Ewald Waldmann, Bodo Dobberkau, Irmtraut Dobberkau, Josef Messerer, Dr. Helmut Cullman, Achim Breidenstein, Dr. Olaf Koblish, Dr. Gundrun Brau, Keller Manfred, Ubelhor Otto, Gergely Katalin, Petitioners-Appellants, v. BERNSTEIN LIEBHARD & LIFSHITZ, LLP, Milberg Weiss Bershad Hynes & Lerach, LLP, Cravath, Swaine & Moore LLP and Deutsche Telekom AG, Respondents-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

376 F.3d 79

Michael SCHMITZ, Christian Bohling, Katrin Howe, Peter Howe, Thomas Ostermann, Claudia Malm-Ostermann, Anne Schieckel, Christine Shieckel, Werner Schmitz, Irene Schulze, Ralf Schulze, Rolf Keeve, Helga Zechmeister, Bernd Collin, Andreas Lange, Gabrielle Thomas, Anna Waldmann, Ewald Waldmann, Bodo Dobberkau, Irmtraut Dobberkau, Josef Messerer, Dr. Helmut Cullman, Achim Breidenstein, Dr. Olaf Koblish, Dr. Gundrun Brau, Keller Manfred, Ubelhor Otto, Gergely Katalin, Petitioners-Appellants, v. BERNSTEIN LIEBHARD & LIFSHITZ, LLP, Milberg Weiss Bershad Hynes & Lerach, LLP, Cravath, Swaine & Moore LLP and Deutsche Telekom AG, Respondents-Appellees.

No. 03-7556.

United States Court of Appeals, Second Circuit.

Argued: December 19, 2003.

Decided: July 20, 2004.

Appeal from the United States District Court for the Southern District of New York, Sidney H. Stein, J.

COPYRIGHT MATERIAL OMITTED

Ralph M. Stone (John F. Carroll, on the brief), Shalov Stone & Bonner LLP, New York, NY, for Petitioners-Appellants.

Robert H. Baron, Cravath, Swaine & Moore, New York, NY, for Respondents-Appellees Cravath, Swaine & Moore LLP and Deutsche Telekom AG.

Robert Wallner, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY, for Respondent-Appellee Milberg Weiss Bershad Hynes & Lerach LLP.

Before: FEINBERG, CALABRESI and CABRANES, Circuit Judges.

FEINBERG, Circuit Judge.

Petitioners Michael Schmitz, et al., plaintiffs in a civil action in Germany against respondent Deutsche Telekom AG, appeal from a judgment of the United States District Court for the Southern District of New York (Sidney H. Stein, J.) denying their application for discovery pursuant to 28 U.S.C. § 1782. Section 1782(a) provides discovery assistance for foreign proceedings. In denying the application, the district court explained that although petitioners had met the statutory requirements of § 1782, granting discovery in this case would run counter to the statute's aims of assisting foreign courts and litigants and encouraging foreign jurisdictions to provide reciprocal assistance to American courts. Accordingly, the court exercised its discretion to deny the application. Petitioners argue on appeal that in doing so the court abused its discretion. For the reasons stated below, we affirm the judgment of the district court.

I. Background

Petitioners are 28 German investors in Deutsche Telekom AG ("DT"), a German corporation. According to respondent Cravath, Swaine & Moore ("Cravath"), thousands of individual German plaintiffs, including the 28 involved in this proceeding, have commenced thousands of separate lawsuits against DT in Germany since 2001. Petitioners' action in Germany alleges that DT misled investors by overstating the value of its real estate assets. Similar allegations are also the focus of a criminal investigation of former DT employees and others by the Public Prosecutor in Bonn, Germany ("the Bonn Prosecutor") and a class action lawsuit commenced in American courts by American purchasers of DT's American Depository Shares. The American actions, filed in December 2000 and January 2001, were consolidated under the caption In re Deutsche Telekom AG Securities Litigation, 00-CV-9475, and are now pending in the Southern District also before Judge Stein.¹ In the American action, DT retained Cravath and plaintiffs retained Bernstein Liebhard & Lifshitz ("Bernstein") and Milberg Weiss Bershad Hynes & Lerach ("Milberg") as their counsel. Pursuant to a protective order, approximately 300,000 documents were produced by DT in that action.

In January 2003, petitioners applied in the Southern District for permission to obtain discovery pursuant to 28 U.S.C. § 1782 from the just-mentioned law firms involved in the American action. Specifically, petitioners sought the documents already produced by DT to the plaintiffs in the American action and now in the law firms' possession. In response to petitioners' § 1782 request, Cravath filed letters from the Bonn Prosecutor and the German Ministry of Justice opposing it on the grounds that production to petitioners at this time would compromise the ongoing criminal investigation in Germany and violate the rights of potential criminal defendants there.²

The Bonn Prosecutor wrote that he was "so far not in a position to grant access to the pieces of evidence held in official custody to the plaintiffs in the civil actions and their lawyers." Further,

Independent of the permissibility under applicable foreign law, it would ultimately be a circumvention of the restrictions on the access to pieces of evidence so far imposed by the Bonn District Attorney's Office if some of the pieces of evidence held in official custody here ... would now be brought to the attention of the plaintiffs in the German civil actions through a detour, for instance through a foreign court.

The State Secretary of the German Federal Ministry of Justice added that "[t]he Federal Government [of Germany] would respectfully like to submit that disclosure of the documents concerned may jeopardize German sovereign rights." He explained that the Bonn Prosecutor had granted DT permission to copy the documents and make them available for the American action on the condition that they be used exclusively for that action, a condition he said was made explicit by the earlier protective order in the Southern District. The State Secretary also explained that petitioners had already asked the Bonn Prosecutor for access to the same documents and that he had denied their request. Nonetheless, the State Secretary did explain that "[i]t is not ruled out that the Public Prosecution Office will grant them access to the files in connection with the German investigations at a later stage in the proceeding." The Bonn Prosecutor added that "[s]uch access can be granted at the earliest if and when the pieces of evidence have been made accessible for all criminal defendants."

In response, petitioners argued that they were unaware that the documents they sought here were the same as those held by the Bonn Prosecutor. They also filed a letter from the presiding judge of the Frankfurt district court stating that "[i]f, in this litigation, documents from a US-American proceeding are attached to a written statement in the case file, the court will take notice of this submission." This letter was followed, however, by a second letter from the Frankfurt judge (submitted by Cravath), explaining that the court's willingness to consider such documents "was indeed no declaration that the Court supported — in opposition to other authorities of the Federal Republic of Germany — the production of such documents."

Cravath further filed declarations from (1) Rolf Sturner, a professor of German and Comparative law, arguing that granting petitioners' discovery request would interfere with the carefully balanced protections crafted by German law; and (2) Hans Smit, a drafter of § 1782, arguing that a court should exercise its discretion to deny discovery if granting it would interfere with the foreign litigation process. Petitioners did not submit any expert evidence of their own, instead reiterating their willingness to subscribe to the protective order in place in the American action. Petitioners also insinuated that the German government was simply trying to protect DT, of which it is a part owner.

In considering the issues before him, Judge Stein first found that petitioners had met the requirements of § 1782 (1) that the person from whom discovery is sought reside (or be found) in the district of the district court to which the application is made, (2) that the discovery be for use in a proceeding before a foreign tribunal, and (3) that the application be made by a foreign or international tribunal or "any interested person."

In re Application of Esses, 101 F.3d 873, 875 (2d Cir.1996) (per curiam). The district court rejected Cravath's argument that § 1782 did not properly apply to the documents in its "temporary custody ... solely for the purposes of U.S. litigation." Nonetheless, the court found that petitioners' request would run counter to the twin aims of the statute, "providing efficient means of assistance to participants in international litigation in our federal courts and encouraging foreign countries by example to provide similar means of assistance to our courts," In re Application of Malev Hungarian Airlines, 964 F.2d 97, 100 (2d Cir.1992). The court thus exercised its statutory discretion to deny discovery. This appeal followed.

II. Discussion

On appeal, petitioners claim that the court abused its discretion in denying discovery. Petitioners argue that they deserve the same treatment from Judge Stein that the American shareholders received in their action and that they are willing to abide by an identical protective order. Petitioners contend that the German authorities, whose motives they consider questionable, have presented only vague sovereignty concerns that are undermined by DT's productions of the documents in the American action. Petitioners also point out that this court has rejected "any requirement that evidence sought ... pursuant to § 1782(a) be discoverable under the laws of the foreign country that is the locus of the underlying proceeding," In re Application of Metallgesellschaft AG, 121 F.3d 77, 79 (2d Cir.1997), and that we have held that "it is far preferable for a district court to reconcile whatever misgivings it may have about the impact of its participation in the foreign litigation by issuing a closely tailored discovery order rather than by simply denying relief outright," In re Application of Euromepa S.A., 51 F.3d 1095, 1101 (2d Cir.1995). We turn now to these contentions.

Section 1782(a) provides that "[t]he 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...