Personal Jurisdiction Discovery: How Far Can It Go?

The expense of modern discovery is well known. It is likely to be the most expensive part of a case. The high costs of discovery can lead to early settlement of cases and cases never being filed in the first place. These costs can rise even further when the parties must engage in discovery to establish whether the defendants are subject to personal jurisdiction in the forum. The recent decision of Reid v. Siniscalchi, C.A. No. 2874-VCN (Del. Ch. May 25, 2012), reflects just how extensive personal jurisdiction discovery can be.

Reid arose from a satellite business venture among the parties in the 1990s. After filing a Texas lawsuit that was dismissed for lack of personal jurisdiction in 2006, plaintiff Dennis Reid, who claimed to be a 10 percent member of nominal defendant USRT Holdings, a Delaware entity, which in turn owned nominal defendant U.S. Russian National Telecommunication, a Delaware entity, sued in Delaware. Several defendants that were Italian entities then moved to dismiss for laches and lack of personal jurisdiction. In early 2008, the Court of Chancery granted the motion to dismiss based upon laches. The Supreme Court reversed this decision and the Court of Chancery had to address whether the entity defendants were subject to personal jurisdiction in Delaware. The plaintiff relied upon a conspiracy theory of jurisdiction, alleging that the entity defendants conspired with individual defendants Vincenzo Siniscalchi and Giorgio Capra to divest a Delaware entity, USRT, of its share of the proceeds of the business venture with the entity defendants.

The parties proceeded with personal jurisdiction discovery. The entity defendants opposed Reid's efforts to depose eight named witnesses and one or two unnamed witnesses to supplement his jurisdictional discovery. These witnesses were located in Italy, France, Russia and the United States. Four of the witnesses previously worked for one of the entity defendants at the time it allegedly collaborated with USRT, two of the witnesses were defendants, three of the witnesses were nonparties and the unnamed witnesses would have knowledge of the document production in the Texas litigation.

The court rejected all of the entity defendants' arguments against depositions of the proposed witnesses. As the court recognized, Reid had the burden of establishing a basis for personal jurisdiction and was entitled to reasonable discovery on the issue of personal jurisdiction. The entity defendants argued that the court could preclude the proposed depositions under Rule 26(b)(1) because: (1) the depositions were unreasonably cumulative or duplicative of prior discovery; (2) the plaintiff unduly delayed in seeking the requested depositions; and (3) the depositions would be unduly burdensome or expensive.

According to the entity defendants, the proposed depositions were unreasonably cumulative or duplicative because Reid had not yet obtained any discovery in the Delaware litigation or the Texas litigation supporting his conspiracy theory of jurisdiction. The court rejected this argument, noting initially it was unclear how the fact that the plaintiff had not already obtained proof of his conspiracy theory made the requested depositions cumulative or duplicative and stating that the proposed depositions were relevant to the plaintiff's conspiracy theory. While the court acknowledged there could be a point where the plaintiff had conducted so much discovery without finding evidence supporting jurisdiction that the court would not allow additional discovery, that point had not yet been reached. The court also refused to find that depositions of some of the proposed witnesses in the prior Texas litigation rendered additional depositions cumulative or duplicative because it had previously concluded that discovery in the Texas litigation was not necessarily relevant to jurisdiction in Delaware.

Next, the court found that Reid had not unduly delayed in seeking the requested depositions. Reid identified deposition witnesses after the entity defendants completed a supplemental production and supplemented their interrogatory responses. In light of the likely cost of the proposed depositions, the court concluded Reid acted reasonably by waiting until after he received a complete production and supplemental interrogatory responses to seek depositions.

The court also rejected the entity defendants' undue burden and expense argument. While the court recognized that the depositions would likely be expensive and burdensome since they would take place in several foreign countries, be subject to foreign laws and require translators, it was unwilling to blame Reid for the fact that those with knowledge of the alleged conspiracy lived outside the United States. The entity defendants also knew that the underlying business venture they had embarked upon was international.

Finally, the court found the proposed depositions reasonably calculated to lead to the discovery of evidence relevant to personal jurisdiction. All of the witnesses were in a position to have knowledge relevant to Reid's conspiracy theory of jurisdiction. The court held the entity defendants were required to compel any proposed witnesses they controlled for depositions. The court ordered the entity defendants to search for and produce any agreements governing the post-employment relationship between them and any proposed deponent who was a former employee so Reid could determine whether any proposed deponents were within the entity defendants' control.

This case illustrates just how far-ranging and expensive personal jurisdiction discovery can be, particularly in a dispute involving international companies. To reduce these kinds of expenses, parties entering into multinational transactions may wish to consider appropriate dispute resolution procedures and/or forum selection clauses in the operative agreements. If it's too late for that, parties may be able to work out a compromise on discovery, since international discovery can impose burdens on all of the parties. Otherwise, the defendants could be stuck with expensive international discovery if the plaintiff has pled a plausible theory of jurisdiction.