MARK LANE, UNITED STATES MAGISTRATE JUDGE
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
MARK LANE, UNITED STATES MAGISTRATE JUDGE
TO THE HONORABLE UNITED STATES DISTRICT JUDGE:
Before the court are Respondents' Joint Motion to Quash (Dkt. #23) and Applicant Blue Dog Group Pty Ltd's Response to Motion to Quash and Cross-Motion to Compel (Dkt. #24). Having considered the parties' written submissions and oral arguments, the undersigned submits this Report and Recommendation to the District Court recommending that Respondents' Motion to Quash be granted and the Applicant's Cross-Motion to Compel be denied, for the reasons set out below.
This action was referred to the undersigned pursuant to Rules CV-72 and 1(d) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas. Dkt. #7. The undersigned has authority to enter this recommendation pursuant to 28 U.S.C. § 636(b)(1)(B).
I. Background
A. Parties
Blue Sky Alternative Investments Limited (“Blue Sky”) was an Australia-based fund manager of alternative investments. Dkt. #1-2 ¶ 3. Blue Sky was founded in April 2009 by Mark Sowerby, who served as its Managing Director until September 2016. Id. Blue Sky went public in January 2012, and its stock traded on the Australian Securities Exchange. Id. After Blue Sky's stock dropped precipitously between March 2018 and May 2019, it was placed into receivership and voluntary administration, and then into liquidation. Id. ¶ 14.
Applicant Blue Dog Group Pty Ltd. (“Blue Dog”) is owned and controlled by Blue Sky's founder, Sowerby, and was one of its largest private shareholders. Dkt. #1-2 ¶ 4; Dkt. #24-2 ¶ 10. Sowerby is a citizen and resident of Australia. Dkt. #1-2 ¶ 4.
Respondent Matthew Wiechert (“Wiechert”) formed Respondent Glaucus Research Group California (“Glaucus”) in 2011. Dkt. #23 at 85 ¶ 3. Respondent Soren Aandahl joined Glaucus that year as its Director of Research. Id. In April 2018, Wiechert and Aandahl parted on good terms. Id. Wiechert formed Respondent Bonitas Research LLC (“Bonitas”), and Aandahl formed Respondent BOC Texas LLC (“BOC”). Id. Glaucus is no longer active. Id.
Glaucus was an “activist short seller” or “short activist.” Dkt. #23 at 85 ¶ 3. A short activist will invest in a public company with the expectation that the price of its securities will go down, rather than up, i.e., a short position. Dkt. #23 at 94 ¶ 9. Unlike a traditional short seller, a short activist discloses its short position publicly in a report stating reasons why it believes a company's practices have resulted in its stock being artificially inflated. Id. ¶¶ 11-12. Between 2011 and 2018, Glaucus published reports on twenty-seven public companies, mostly located in the Pacific Rim. Dkt. #23 at 85 ¶¶ 4-8. Glaucus's reports disclosed its short positions on the companies it reported on, stated that it stood to profit if the company's stock price declined, and warned that it could be considered biased because of its short position. Dkt. #23 at 94 ¶ 16.
B. The Glaucus Report and Blue Sky's Failure
Blue Sky considered itself a global investment firm, and in 2018 was targeting investors in Texas and elsewhere. Dkt. #23 at 89 ¶ 10. Blue Sky told investors that its investment funds had generated 15% net internal rate of return since inception which, if true, would have been among the best investment returns of any fund manager anywhere over the period from 2006-2018. Id.
On March 28, 2018, Glaucus published a 67-page report (the “Glaucus Report”) arguing that Blue Sky was exaggerating its fee earning assets under management, exaggerating the performance of its investments, and charging excessive fees, and that its stock was therefore overvalued. Dkt. #23 at 89 ¶ 11; Dkt. #1-2 at 24-90. The Glaucus Report was labeled an investment opinion and disclosed that Glaucus had “a short interest in Blue Sky's stock and therefore stand[s] to realize significant gains in the event that the price of such instrument declines.” Dkt. #1-2 at 24. The Glaucus Report was based on publicly available documents, articles, and Blue Sky's disclosures. Id. ¶ 13. It contained links and cites to its sources and set out Glaucus' estimates, calculations, and analysis so that investors and the public could evaluate its opinions. Id.; Dkt. #1-2 at 24-90.
The parties disagree about the cause of Blue Sky's failure. The court summarizes the parties' contentions, without making any finding on that question. According to Sowerby's affidavit in support of Blue Dog's application, within an hour of the Glaucus Report's publication, Blue Sky's shares fell from AUD$11.41 to AUD$10.40 (approximately 9%), and the Australian Securities Exchange halted trading to provide more time “for the market price of Blue Sky's shares to adjust to reflect an informed market consensus” on the Glaucus report. Dkt. #24-2 ¶ 11. On April 3, 2018, Blue Sky published a response to the Glaucus Report, claiming it was false. Id. ¶ 12. Trading resumed on April 4, 2018, and by the close of the day Blue Sky's share price had fallen a further 19%, from AUD$10.40 to AUD$8.47, despite Blue Sky's response. Id. On April 4, 2018, Blue Sky admitted that for some of its funds, fee-earning assets under management had been calculated based on “reevaluations” of its portfolio, and that such increases drove up its management fees. Dkt. #23 at 90 ¶ 17. On April 5, 2018, Glaucus published a rebuttal to Blue Sky's response. Id. ¶ 12; Dkt. #1-2 at 105-18. By the close of trading that day, Blue Sky's stock had fallen another 34%, from AUD$8.47 to AUD$5.62. Dkt. #24-2 ¶ 11. Within a month, Blue Sky's stock had fallen another 52%, to AUD$2.72. Id. On April 16, 2018, Blue Sky downgraded its full year guidance and reported assets under management, including its underlying net profit from its investments. Dkt. #23 at 90 ¶ 17. In the following weeks, as reported by Australian media, Blue Sky admitted that assets under management were hundreds of millions less than it had previously claimed, and its managing director resigned, along with other directors, board managers, and a newly appointed CFO only two weeks after her appointment. Id. ¶ 17-19. Sowerby responds that false statements in the Glaucus report caused investors to withdraw assets from Blue Sky's management, and that is what led to Blue Sky's announcement that its assets under management had diminished. Dkt. #24-2 ¶ 12. In July 2019, a columnist at the Australian Financial Review labeled Blue Sky a “Ponzi fund.” By May 20, 2019, Blue Sky's stock was trading at AUD$0.185. Dkt. #1-2 ¶ 13. In January 2020, The Sydney Morning Herald called Blue Sky the “Fyre Festival of funds management.” Blue Sky was placed into receivership and voluntary administration on May 20, 2019. Dkt. #1-2 ¶ 13. Two years later, on May 31, 2021, Blue Sky was placed into liquidation. Id.
Dkt. #23 at 90 ¶ 22 (citing https://www.afr.com/rear-window/asic-circles-blue-sky-as-it-explains-its-ponzi-20180701-h1239i).
Dkt. #23 at 90 ¶ 22 (citing https://www.smh.com.au/business/markets/fyre-festival-of-funds-management-how-blue-sky-came-crashing-down-20200123-p53u69.html).
C. Blue Dog's Application for Section 1782 Discovery
On March 10, 2023, five years after Glaucus published the Glaucus Report, Blue Dog filed an ex parte application with this court pursuant to 28 U.S.C. § 1782 seeking an order authorizing it to subpoena Glaucus, Wiechert, Aandahl, Bonitas, and BOC for documents and testimony about Glaucus's report and its shorting of Blue Sky's stock. Dkt. #1. Blue Dog supported its application with an affidavit from Sowerby claiming the Glaucus Report was part of an “illegal short selling attack.” Dkt. #1-2 ¶ 16. According to Sowerby, the Glaucus Report's allegations about Blue Sky were false. Doc #1-2 ¶ 11. Sowerby stated that “Blue Dog intends to commence proceedings by filing pleadings in an Australian court should the evidence gathered under this Application identify the relevant co-conspirators and be positively indicative of the likely success of the proceedings.” Id. ¶ 29.
Relying on the application and Sowerby's affidavit, the undersigned granted Blue Dog's application on March 22, 2023, authorizing Blue Dog to serve the requested subpoenas. Dkt. #8.
After Blue Dog served its subpoenas, Respondents objected to the discovery sought, the parties conferred, and the undersigned entered an agreed briefing schedule. Dkt. #20. Respondents filed a joint motion to quash the subpoenas on March 31, 2023. Dkt. #23. Blue Dog filed a response and cross-motion to compel on June 16, 2023. Dkt. #24. Respondents filed a response, Dkt. #25, Blue Dog replied, Dkt. #37, and Respondents filed a sur-reply. Dkt. #38. The undersigned held a hearing on the parties' motions on July 17, 2023. Dkt. #39.
II. Applicable Law
Section 1782 provides, in relevant part, that a
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 .... The order may be made ... 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.
28 U.S.C. § 1782. This statute “authorizes, but does not require,” a federal district court to provide assistance to parties seeking discovery to be used in foreign proceedings who meet its requirements.
Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 264 (2004).
“On receiving a section 1782 application, the district court first decides whether the petitioner meets the statutory requirements.” Banca Pueyo SA v. Lone Star Fund LX (US), LP, 978 F.3d 968, 970 (5th Cir. 2020). Three statutory conditions must be met: (1) the person or entity from whom discovery is sought must reside in or can be found in the court's district; (2) the application must be made by a foreign or international tribunal or an interested person; and (3) the discovery must be “for use in a proceeding in a foreign or international tribunal ....” Id. “This threshold showing merely ‘authorizes, but does not require,' a court to permit discovery, which is wholly discretionary.” CFE Int'l LLC v. Antaeus Group LLC, No. 1:22-CV-365-LY-ML, 2022 WL 17731821, at *4 (W.D. Tex. Aug. 26, 2022) (quoting Intel, 542 U.S. at 264).
For applicants who have met their burden of showing the three statutory requirements, the Supreme Court identified four additional, non-exclusive factors to guide a court's exercise of its discretion: (1) whether the person from whom the discovery is sought is a participant in the foreign proceeding; (2) the nature and character of the foreign proceeding and the receptivity of the foreign government, court, or agency to federal-court judicial assistance; (3) whether the request conceals an attempt to circumvent foreign proof-gathering restrictions or other polices of a foreign country or the United States; and (4) whether the requests are unduly intrusive or burdensome. 542 U.S. at 264. These factors are nonexclusive, and a district court “should also take into account any other pertinent issues arising from the facts of the particular dispute.” Id. at 244-45.
A court's initial decision to authorize the issuance of subpoenas, at least when granted ex parte, does not shift the burden of persuasion to the respondents to disprove the applicant's entitlement to discovery assistance. “When an applicant obtains an order allowing it to serve subpoenas under Section 1782 on an ex parte basis, the district court should vacate the order and quash discovery where, upon reconsideration, it determines the applicant failed to show that a Section 1782 order was warranted in the first instance.” CFE Int'l, 2022 WL 17731821, at *5 (citing In re Microsoft Corp., No. C 06-80038JF (PVT), 2006 WL 825250, at *2 n.3 (N.D. Cal. March 29, 2006)).
III. Analysis
The parties do not dispute that Blue Dog satisfied the first two statutory requirements: that (1) Respondents can be found in this district and (2) Blue Dog would be an “interested person” in the legal proceedings it contemplates filing in Australia. Respondents dispute, however, that Blue Dog has met the third element: that the discovery it seeks is “for use” in a foreign proceeding.
Blue Dog has not filed a legal proceeding related to Blue Sky's failure or the Glaucus Report in Australia, the United States, or anywhere else. Dkt. #1-2 ¶ 29. However, the Supreme Court has held that a court may, in its exercise of discretion, grant discovery if a Section 1782 applicant shows that a “dispositive ruling” by a foreign tribunal is “within reasonable contemplation.” Intel, 542 U.S. at 259. The Supreme Court has not further defined when a dispositive ruling is “within reasonable contemplation,” but courts have held that “future proceedings must be more than speculative, and that a “district court must insist on reliable indications of the likelihood that proceedings will be instituted in a reasonable time.'” Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 747 F.3d 1262, 1270 (11th Cir. 2014) (quoting In re Letter of Request from the Crown Prosecution Serv. of the U.K., 870 F.2d 686, 691 (D.C. Cir. 1989) (Ginsburg, J.)). As Magistrate Judge Goodman observed,
it is relatively easy for an applicant to simply
say that he (or she or it) plans to use the discovery in a proceeding that will be filed in another country. But that can't be sufficient to meet the “reasonable contemplation” standard established in
Intel because any party could subjectively contemplate a possible lawsuit.
In re da Costa Pinto, No. 17-22788, 2018 WL 6620905, at *8 (S.D. Fla. Aug. 27, 2018) (emphasis in original). Instead, an applicant “must have more than a subjective intent to undertake some legal action; it must provide “objective indicium,” a “concrete basis” from which the district court can determine that a dispositive ruling in a foreign proceeding is within reasonable contemplation.
Certain Funds, Accounts and/or Investment Vehicles v. KPMG, LLP, 798 F.3d 113, 123-24 (2d Cir. 2015).
Upon a careful review of the record, the court concludes that Blue Dog has failed to meet its burden of persuasion with objective, concrete proof that that a foreign proceeding is truly within reasonable contemplation.
First, Blue Dog fails to explain the five-year delay between the publication of the Glaucus Report and the filing of its Section 1782 application, other than to claim that the limitations period for its potential claims is six years and will expire “on or around March 28, 2024.” Dkt. #24 at 6; Dkt. #24-2 ¶ 9; Dkt. #24-3 at 10 ¶ 29. Sowerby retired from his role as Blue Sky's Managing Director in September 2016, id. ¶ 10, but he does not identify anything between March 2018 and March 2023 that prevented him or Blue Dog from taking legal action with regard to the Glaucus Report. Id. at ¶¶ 1-9.
Blue Dog argues that this unexplained five-year delay is immaterial, claiming the Fifth Circuit “brushed aside” a seven-year delay in Bravo Express Corp. v. Total Petrochemicals & Refining USA, Inc., 613 Fed.Appx. 319 (5th Cir. 2015). Dkt. #24 at 6. But the Fifth Circuit held in Bravo Express that the delay was mitigated because the applicant averred that a foreign proceeding would “be imminently filed with the High Courts in London, United Kingdom,” and because the application laid out, “in great detail, the facts that give rise to the prospective lawsuit.” Id. at 323. In addition, Bravo counsel's represented that it “had already prepared its ‘claim of particulars' against” the target of its UK proceeding; that it intended to file “in October of this year” in a specifically identified court; and that much of the delay was spent gathering evidence because its UK barristers informed it that when it filed its action, it had “to file it with all the evidence attached.” Id. Bravo also had “requested and received extensions of time to file from the prospective defendant in the foreign case.” Id. And, while the UK proceedings had not yet commenced when Bravo filed its application, the Fifth Circuit noted that, by the time it ruled, “[t]he foreign proceedings have since commenced and currently are in progress.” Id. at 320 n.2.
Blue Dog has shown none of these facts. Its application identified no anticipated filing date or court; Sowerby averred only that “Blue Dog intends to commence proceedings by filing pleadings in an [unidentified] Australian court should the evidence gathered under this Application ... be positively indicative of the likely success of the proceedings.” Dkt. #1-2 ¶ 29. Unlike Bravo, Blue Dog did not claim to have prepared a claim of particulars or its equivalent; that it spent time gathering evidence; that Australian law requires it to file evidence with its lawsuit; or that it had sought extensions from its prospective targets. Sowerby's affidavit claimed generally that the Glaucus report contained “misrepresentations,” but he expressly did not attempt “to provide a full response” to them. Dkt. #1-2 ¶ 11. Instead, he asserted that the Australian Securities and Investment Commission (“ASIC”) had drawn three conclusions favorable to Blue Sky when it decided not to take enforcement action against it, but he did not provide any documents from ASIC corroborating his claim. Id.
The court finds that Blue Dog's failure to explain its five-year delay in bringing this application supports a finding that a foreign proceeding was not reasonably anticipated at the time its application was filed. See Certain Funds, 798 F.3d at 124 (district court did not err in determining that proceedings were not within reasonable contemplation at time application was filed “[i]n light of the substantial length of time between the Saudi conglomerates' default in 2009 and the filing of the Funds' § 1782 application in 2014”); In re Hully Enterprises, Inc., 400 F.Supp.3d 62, 73 (S.D.N.Y. 2019) (magistrate judge's decision to consider applicant's delay in denying discovery request “neither clearly erroneous nor contrary to law”).
Next, the court notes that, in the five years since its publication, no party has filed any legal proceeding alleging the Glaucus Report was false, despite its serious claims that Blue Sky was misleading investors in various ways, and that Sowerby's sale of millions of shares of Blue Sky stock before its crash were inexplicable unless he knew that its price was artificially inflated. Dkt. 90 ¶¶ 11, 21.
Lawsuits have been filed in Australia over Blue Sky's collapse, but they do not allege that the Glaucus Report was false; rather, they allege that Blue Sky, its directors, and its auditors violated Australian securities laws because (consistent with Glaucus's analysis) Blue Sky's financial reports overstated its financial performance and position by, among other things, overstating its assets under management, overstating its revenue, receivables, profits, and overstating the value of its inventory, investments, and other assets. Dkt. #23 at 157-61. Because the shareholders who brought these actions have the same interest as Blue Dog in recovering their lost Blue Sky investments, the court finds that the lack of any Australian proceeding alleging the Glaucus Report to be false is another objective indication that a proceeding by Blue Dog is not within reasonable contemplation.
Sowerby does claim that Blue Dog “has engaged Australian litigation counsel,” and that “[s]ignificant work has already been progressed on the likely claims,” Dkt. #1-2 ¶ 27, but he does not identify the attorneys or describe the work they have done. Id. Blue Dog's application was supported by an Australian barrister's declaration, but his opinion was limited strictly to whether an Australian court would be receptive to receiving evidence obtained from a Section 1782 application and whether Blue Dog's application is an attempt to circumvent Australian discovery procedures and policies. Dkt. #1-4 ¶¶ 5-6. His declaration provided no factual or legal analysis of Blue Dog's putative claims against Respondents. Id. ¶¶ 1-54. Only Sowerby, a non-lawyer and interested party, identified Australian laws he believes Respondents violated, and then only in a single, conclusory sentence. Dkt. #1-2 ¶ 28.
Sowerby's declaration described purported conclusions by ASIC that he believes vindicated Blue Sky, but he did not quote any statements by ASIC, let alone provide documentation supporting his assertions about the agency's decision. Id. ¶ 11. In contrast, Respondents provided documents from ASIC that, although redacted for confidential information, show that Blue Sky complained to ASIC in an April 3, 2018, letter that “the Glaucus Report contained fundamental errors of fact/analysis and was materially misleading,” Dkt. #23 at 143, but that ASIC took no action on Blue Sky's complaints because “No potential false or misleading statements were found in the Glaucus Report” and “No apparent short selling misconduct in BLA [Blue Sky] was found.” Dkt. #23 at 144. The court finds that this also supports a conclusion that Blue Dog has failed to meet its burden of persuasion with objective evidence that litigation based on a claim that the Glaucus report was materially false is within reasonable contemplation.
Blue Dog's application and Sowerby's affidavit, although referring to purported findings by ASIC favorable to Blue Sky, made no mention of ASIC's rejection of Blue Sky's complaints about the Glaucus report and insider trading. Dkt. #1 at 1-21; Dkt. #1-2 ¶¶ 1-29. In a supplemental declaration, Sowerby claimed that although he had previously seen “a heavily redacted version of ASIC's 27 November 2018 file note,” he was “surprised by ASIC's statements” regarding Glaucus. Dkt. #24-2 ¶ 7. Sowerby does not, however, deny knowing that ASIC had taken no action on Blue Sky's April 2018 complaint about Glaucus. Id. To the extent Sowerby's declaration or Blue Dog's briefing suggests that Sowerby did not know of ASIC's findings, the court finds that assertion to be not credible, given that Sowerby founded Blue Sky and retained a large financial interest in the company at the time of its collapse. Indeed, in an article published two years before Blue Dog filed its application, the Australian Financial Review reported that, in response to Blue Sky's complaint, “ASIC determined ‘no potential false or misleading statements were found in the Glaucus report' and ‘no apparent short-selling misconduct' in Blue Sky was found” quoting the same ASIC document Respondents provided to the court. Dkt. #25 at 22. Considering all the evidence, the court concludes that Sowerby is not a credible witness and was likely aware of ASIC's findings regarding the Glaucus report prior to filing the Section 1782 application, but deliberately omitted them from his affidavit in support of Blue Dog's ex parte application. Blue Dog also omitted any mention in its application of the proceedings filed in Australian courts blaming Blue Sky's directors and auditors, not Glaucus, for the company's collapse.
Alternatively, if the court were to believe Sowerby did not actually know of ASIC's findings, that would suggest Sowerby had not done an adequate pre-suit investigation. This would further undermine his credibility that he intends to file suit.
The Australian Financial Review article also noted that “[d]ocuments filed on ASIC's disclosure log also show someone else had requested information on the regulator's activities, with documents touching on Blue Sky's complaint that Glaucus' report contained ‘fundamental errors of fact/analysis and was materially misleading,'” which the court finds supports an inference that Blue Sky, Blue Dog, and/or Sowerby had received those documents before Blue Dog filed its application. Dkt. #25 at 22.
Blue Dog gave no explanation for filing its application ex parte, despite knowing their locations. See Dkt. #1. Based in part on his experience in this matter, the undersigned has concluded that he will not grant Section 1782 applications ex parte in the future absent extraordinary circumstances, such as a genuine threat of material evidence being lost or destroyed before a respondent is given notice of the filing and an opportunity to be heard.
While Blue Dog is not required to prove the merits of its putative claims to obtain Section 1782 relief, the court finds the lack of any corroborating, objective support for Sowerby's conclusory assertion that the Glaucus report is misleading and legally actionable under Australian law indicative that a foreign proceeding is not within reasonable contemplation. See Certain Funds, 798 F.3d at 124 (retaining counsel not sufficient to show that foreign proceeding reasonably contemplated); Bush v. Cardtronics, Inc., No. CV H-20-2642, 2020 WL 6261694, at *3 (S.D. Tex. Oct. 23, 2020) (foreign proceeding not within reasonable contemplation, despite applicant claiming to have hired a Mexican law firm, where applicant had not provided “an affidavit from counsel detailing the planned litigation” nor “reliable records showing the reason” for one-year delay between retaining counsel and filing Section 1782 application).
Blue Dog appears to defend its five-year delay in taking any legal action in Australia, and to justify its need for pre-suit discovery in the United States, based in part on its prediction that Respondents Glaucus, Wiechert, and Aandahl will not appear if sued in Australia. E.g., Dkt. #24 at 13; Dkt. #37 at 7, 13-14. Blue Dog bases this prediction on Wiechert's and Bonita's decision not to appear when sued in Australia by a different company over a different report, id., based on their contention that they were not subject to personal jurisdiction in Australia in that case. Dkt. #23 at 85 ¶ 5. Blue Dog provides no basis for predicting that Respondents Glaucus and Aandahl would not appear in an Australian proceeding. In any case, the court places no weight on Blue Dog's prediction because, even if correct, to do so would impose a Hobson's Choice on Respondents: either submit to extensive, merits-based, pre-lawsuit discovery in the United States, or preemptively waive their right to challenge personal jurisdiction in an Australian proceeding that has not, and may never be, filed.
Finally, Blue Dog and Sowerby's own statements conditioning their intent to file suit on this court granting Section 1782 discovery support the undersigned's conclusion that a foreign proceeding is not objectively within reasonable contemplation. Despite accusing them of “market manipulation” and “insider trading,” Blue Sky's application frankly admitted that it lacks sufficient evidence of culpability to file suit against Respondents, and that it is hoping to gather evidence to determine whether a viable claim exists. Sowerby's affidavit in support of Blue Dog's application stated that “[n]either Blue Dog nor I have initiated any current proceedings and ... we are unlikely to file proceedings without the benefit of the requested assistance of the U.S. court to identify relevant evidence and co-conspirators.” Dkt. #1-2 ¶ 29.
In response to Respondents' motion to quash, Blue Dog first stated unequivocally that “it intends, no later than the first quarter of 2024, to file litigation in Australia against Respondents and their co-conspirators,” Dkt. #24 at 4, but then immediately qualified that statement by saying it “was unlikely to file the Australian litigation unless it receives the evidence sought through this proceeding.” Id. at 5. Sowerby further undermined Blue Dog's argument by again qualifying that intention on the results of this proceeding, admitting that suit would be filed in Australia only “provided Blue Dog receives the evidence sought through this application,” and provided that the evidence obtained establishes “that Respondents published knowingly false statements to drive down Blue Sky's share price ....” Dkt. #24-2 ¶ 17. Blue Dog provided a second affidavit from its Australian barrister, but like the first one, it did not address the factual or legal basis of Blue Dog's putative Australian claims against Respondents. Dkt. #24-3. In any case, the court must consider Blue Dog's application as of the time it was filed, not based on subsequent arguments and assertions made in response to a motion to quash. Certain Funds, 798 F.3d at 124 (“[W]e assess the indicia of whether the contemplated proceedings were within reasonable contemplation at the time the § 1782 application was filed.”).
The court finds that Blue Dog and Sowerby's repeated statements conditioning their intention to file suit on both (1) this court's authorization of Section 1782 subpoenas and (2) on the nature of the evidence those subpoenas would produce, supports its finding that a foreign proceeding is not reasonably contemplated. This finding is consistent with multiple cases where district judges likewise concluded that an applicant's admission that it did not yet have evidence sufficient to file suit meant that a foreign proceeding was not within reasonable contemplation. See, e.g., Fagan v. J.P. Morgan Chase Bank, No. SA-19-MC-00111-FB, 2019 WL 984281, at *2 (W.D. Tex. Feb. 28, 2019) (denying § 1782 application where applicant sought U.S. discovery to ascertain whether there was a basis to file suit in Mexico); Mangouras v. Squire Patton Boggs, 980 F.3d 88, 101-02 (2nd Cir. 2020) (§ 1782 application should not be granted where applicant admits whether an action will be brought depends upon what is learned through the sought-after discovery); Leutheusser-Schnarrenberger v. Kogan, No. 18-MC-80171-JSC, 2018 WL 5095133, at *4 (N.D. Cal. Oct. 17, 2018) (“Courts must guard against the specter that parties may use § 1782 to investigate whether litigation is possible before launching it.”); In re Hoteles City Express, No. 18-MC-80112, 2018 WL 3417551, at *3 (N.D. Cal. July 13, 2018) (denying ex parte § 1782 request where applicant had insufficient evidence to state a claim for defamation under Mexican law).
Simply put, the court finds under the particular facts of this case that Blue Dog's repeated admissions that it seeks discovery to determine whether it has a viable claim, and that it is unlikely to file suit unless compelled U.S. discovery turns up evidence of Respondents' culpability, indicates that a foreign proceeding is not within reasonable contemplation.
Blue Dog cites Banoka v. Westmont International Development. Inc., No. 4:20-CM-3378, 2022 WL 480118, at *1 (S.D. Tex. Feb. 10, 2022), aff'd sub nom. Bissonnet v. Westmont Int. Dev., Inc., No. 21-20434, 2022 WL 636680 (5th Cir. 2022), noting that the district court in that case found litigation within reasonable contemplation despite the applicant's admission that without Section 1782 discovery, it could not plead a case for fraud in an English court. But the court in Banoka recognized that the applicants' “argument seems circular, in that they contend that their hypothetical lawsuit against Westmont is reasonably contemplated because they speculate that the discovery they seek will show that their lawsuit is more than speculative.” Id. at *5. While the court ultimately concluded that a proceeding was reasonably contemplated, unlike Blue Dog, the applicants in Banoka had “extensively set out their legal theory and retained English counsel,” had “sent letters to Westmont outlining their legal theory,” and had requested that it produce document voluntarily. Id. The Banoka court still denied Section 1782 discovery on the Intel factors and was affirmed, and its concerns about the applicants' motivations were confirmed when another court denied a second Section 1782 application by the same parties who, two years later, had still not filed suit. Banoka v. Alvarez & Marsal, Inc., No. 22-MC-00182, 2023 WL 1433681, at *7 (S.D.N.Y. Feb. 1, 2023) (two-year delay since original petition “only underscores why this Court is suspicious that this action is a fishing expedition”). The only case Blue Dog cites that granted a Section 1782 application where the applicant lacked sufficient evidence of wrongdoing to file a foreign proceeding is In re Application of Eurasian Bank Joint Stock Co. for Expedited Judicial Assistance pursuant to 28 U.S.C. § 1782 , No. 3:15-MC-106-L-BN, 2015 WL 6438256, at *2 (N.D. Tex. Oct. 21, 2015), a non-binding decision that was rendered on an ex parte application with no opposition briefing and with no indication the respondents subsequently challenged the subpoenas in a motion to quash. 2015 WL 6438256, at *2.
The court finds the other cases Blue Dog cites on this issue equally unpersuasive. In Bravo Express, as noted, the applicant presented an affidavit from its attorney averring under oath that a lawsuit would “be imminently filed with the High Courts in London, United Kingdom,” and laid out, “in great detail, the facts that give rise to the prospective lawsuit,” identified a specific date it planned to file suit, and had already prepared its claim of particulars. 613 Fed.Appx. at 323. It did not condition filing suit on obtaining U.S. discovery and, had in fact filed suit before the Fifth Circuit ruled. Id. at 320 n.2, 321. The applicant in In re Mishra, who alleged that fake online reviews had denigrated him, did not need to obtain evidence of wrongdoing, but only the names of who posted the reviews, without which it could never file suit. No. 22-cv-08923-BLF, 2022 WL 17905112, at *1 (N.D. Cal. Dec. 23, 2022). In LEG Q LLC v. RSR Corp., the respondents did not even contest that a foreign proceeding was within reasonable contemplation, given that the petitioner was already in the process of initiating a foreign shareholder derivative lawsuit against a company's chairman and board members. No. 3:17-cv-1559-N-BN, 2017 WL 3780213, at *6 (N.D. Tex. Aug. 31, 2017).
Because the court finds that Blue Dog has failed to meet the statutory requirements of Section 1782, it does not need to reach the discretionary Intel factors. Certain Funds, 798 F.3d at 117. Nonetheless, the court will briefly address them. Respondents are targets of the would-be foreign proceeding. Most importantly, Blue Dog admits that the discovery it seeks now would be difficult to obtain through the foreign proceeding. Australian proceedings do not usually allow for depositions, and Blue Dog would need permission from the Australian tribunal to see Section 1782 discovery. Thus, it appears that this request is an attempt to circumvent foreign proof-gathering restrictions and the Australian tribunal may be hostile to such proof gathering. While the undersigned was unmoved by Respondents' arguments that the subpoenas were overbroad and unduly burdensome, the court cannot deny burden the subpoenas would place on Respondents given the weakness of Blue Dog's arguments that it has satisfied the Section 1782 statutory requirements.
IV. Conclusion
For the foregoing reasons, the court finds that Blue Dog has failed to meet its burden of persuading this court that a foreign proceeding is within reasonable contemplation. Sowerby's statements are the only evidence that support Blue Dog's assertion that it intends to file suit. For the reasons given above, the undersigned finds Sowerby's affidavit not credible on this issue. The court does not doubt that Sowerby believes he has been wronged, but that is all he has presented to the court-his belief. He has offered the court no other objective support for his belief. This is not enough.
Finally, because a § 1782 application is a freestanding subpoena request filed on its own and not in conjunction with another federal lawsuit, the undersigned will recommend this case be closed. CPC Pat. Techs. Pty Ltd. v. Apple, Inc., 34 F.4th 801, 808 (9th Cir. 2022) (citations omitted); see also, e.g., Tex. Keystone, Inc. v. Prime Nat. Res., Inc., 694 F.3d 548, 554 (5th Cir. 2012) (“[Section] 1782 does not establish a standard for discovery. Instead, it provides for a threshold determination of whether to allow foreign litigants to enjoy discovery in U.S. courts in accordance with federal rules.”) (alteration in original) (citation omitted).
V. Recommendation
For the foregoing reasons, the undersigned Magistrate Judge RECOMMENDS that the District Court GRANT Respondents' Joint Motion to Quash (Dkt. #23) and DENY Applicant's Cross-Motion to Compel (Dkt. #24).
Finally, the undersigned RECOMMENDS this case be CLOSED.
VI. Objections
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battles v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Services Auto. Ass'n, 79 F.3d 1415 (5th Cir. 1996) (en banc).