As cross-border business continues to grow, litigation too is increasingly crossing borders. In a recent decision addressing several issues of first impression, the U.S. Court of Appeals for the Second Circuit opted to aid international litigants, interpreting Section 1782 of Chapter 28 of the United States Code to allow discovery in aid of foreign proceedings to be taken in the U.S. from entities that are subject to personal jurisdiction in the U.S. In re del Valle Ruiz, 939 F.3d 520 (2d Cir. 2019). The appellate court held that “there is no per se bar to extraterritorial discovery” in the United States, and that district courts may exercise personal jurisdiction in their discretion, consistent with the mandates of due process, in ruling on an application for discovery under Section 1782. Id. at 524, 533-34. The Second Circuit noted “that a court may properly, and in fact should, consider the location of documents and other evidence when deciding whether to exercise its discretion to authorize such discovery.” Id. at 533.

Armed with this ruling, parties litigating abroad can file a petition in a U.S. district court seeking documents and information, thereby taking advantage of the breadth afforded by American-style discovery. However, the Second Circuit preserved constitutional limitations on this extraterritorial reach by mandating that the target individual or entity from which discovery is sought be subject to personal jurisdiction in the district where the petitioned court sits–holding that Section 1782’s “resides or is found” language extends only to the limits of personal jurisdiction consistent with due process. Id. at 528.

The decision was a victory for Pacific Investment Management Company LLC and Anchorage Capital Group, LLC (the PIMCO petitioners)–investment and asset-management firms–which filed petitions under Section 1782 in the U.S. District Court for the Southern District of New York. The PIMCO petitioners sought to obtain discovery from Banco Santander S.A. (Santander) and its New York-based affiliate, Santander Investment Securities Inc. (SIS) concerning a 2017 transaction in Spain.

In June 2017, Santander purchased Banco Popular Espanol, S.A. (BPE), which was then Spain’s sixth-largest bank, with assets approximating $150 billion. The 2008 financial crisis had filled BPE’s balance sheet with toxic assets, putting the bank at risk of failure and on the brink of bankruptcy after large withdrawals from Spanish government entities in 2016. In lieu of a bankruptcy filing, the Spanish government forced a sale of BPE in June 2017; Spain’s national banking supervisory authority invited several banks to submit bids for the purchase of 100% of BPE’s equity. A single bid–Santander’s, for a total of one euro (€ 1)–was received on June 6, 2017 and accepted the next day.

The forced sale to Santander caused many investors–including the PIMCO petitioners–significant losses, causing a myriad of foreign proceedings challenging the BPE transaction. Among them, the PIMCO petitioners and certain individual investor petitioners led by Antonio del Valle Ruiz filed Section 1782 applications against Santander, seeking documents and communications relating to BPE’s liquidity and the sale. The PIMCO petitioners also sought discovery from SIS. Before the trial court, Santander challenged the extraterritorial reach of the statute–protesting that Santander does not reside in the Southern District of New York, and while its U.S. affiliate SIS resides or is found in the district, SIS was not involved in the BPE acquisition. The district court held that “at a minimum § 1782 must comport with constitutional due process, i.e., the court must have personal jurisdiction” and “none of the Santander entities except SIS met the requirement for general jurisdiction.” In re del Valle Ruiz, 342 F. Supp. 3d 448, 453-57, 459 (S.D.N.Y. 2018) (Ramos, J.).

Accordingly, the trial court denied both petitioners’ discovery requests to Santander but granted the PIMCO petitioners’ discovery requests to SIS. The petitioners appealed, arguing that they were entitled to discovery from Santander, and Santander cross-appealed, arguing that the PIMCO petitioners were not entitled to discovery from SIS.

The Second Circuit resolved the issue of the meaning of “resides or is found” under Section 1782, finding that the statute reaches as far as the constitutional limits of personal jurisdiction, affirming the district court’s holding that SIS had sufficient contacts with the Southern District of New York such that allowing discovery would not violate “traditional notions of fair play and justice.” In doing so, the Second Circuit declined to adopt “a categorically lower showing of due process needed to obtain discovery from a nonparty,” holding that it is “enough for purposes of due process in these circumstances that the nonparty’s contacts with the forum go to the actual discovery sought rather than the underlying cause of action.” In re del Valle Ruiz, 939 F.3d at 530. The Second Circuit also affirmed the district court’s ruling that investor plaintiffs could not seek discovery from Santander in the United States because Santander did not have sufficient minimum contacts in the district prior to the nominal purchase of BPE–the underlying impetus of the case.

This decision will have far-reaching impact on other foreign litigants who seek to enforce Section 1782 petitions in the U.S. to obtain expansive discovery unavailable in foreign courts.

Should mutual funds take a more active role in securities litigation? Data appears to suggest that they should.

According to Sean J. Griffith[1] and Dorothy S. Lund[2], authors of “Toward a Mission Statement for Mutual Funds in Shareholder Litigation”[3], mutual funds can improve returns for investors by taking on a greater role in enforcing shareholder and investor rights in court. Griffith and Lund survey participation in derivative suits, direct and class claims under state law, appraisal claims, and private securities litigation, and develop a recommendation for “a few simple changes [by which] mutual funds will be able to reap litigation benefits without substantially increasing their costs.”[4]

Amy Roy and Robert Skinner[5] offered a counterpoint in their piece “Mutual Funds Should Stay Out Of Shareholder Litigation,” asserting that “[l]itigation opportunities–like investment opportunities–come with opportunity costs, which the authors fail to acknowledge.” Focusing primarily on burdens of private securities litigation, such as serving as a lead plaintiff and what they view as the “myth” of improved opt-out recovery, Roy and Skinner concluded, “Notable exceptions aside, fund shareholders are generally better served by allowing their advisers to remain focused on what it is they were hired to do–investing their money and outperforming the market.”

Griffith and Lund responded to this critique in “Mutual Funds Should Use Litigation For Shareholders’ Benefit.” They wrote that the “notable exceptions” that Roy and Skinner brush aside are, in fact, “specific evidence . . . showing that shareholder litigation can benefit mutual funds and their investors–directly, by securing compensation, or indirectly, by deterring misconduct, among other things.” Looking at securities class actions and finding an active participation rate of only 0.6 percent–i.e., 10 cases out of 1,500 over a 10-year period–Griffith and Lund wonder (and rightly so) whether the true “rate of good cases to bad ones” could be so low.

Griffith and Lund’s conclusion that mutual funds’ “dismal litigation record . . . raises serious questions of whether mutual funds are acting as faithful governance intermediaries for their investors” presents an issue that both mutual fund managers and investors need to address, due in part to the rising prevalence of mutual funds.

By one recent measure, if mutual funds chose to functionally self-exclude from securities litigation, this would sideline nearly a quarter of all equity ownership:


As Congress noted when drafting the Private Securities Litigation Reform Act of 1995:

Private securities litigation is an indispensable tool with which defrauded investors can recover their losses without having to rely upon government action. Such private lawsuits promote public and global confidence in our capital markets and help deter wrongdoing and to guarantee that corporate officers, auditors, directors, lawyers, and others properly perform their jobs.[6]

This sentiment was echoed more recently by then-SEC Commissioner Luis Aguilar in his 2012 statement in the wake of the Supreme Court’s decision in Morrison v. National Australia Bank, Ltd.:

It is unrealistic to expect that the Commission will have the resources to police all securities frauds on its own, and as a result, it is essential that investors be given private rights of action to complement and complete the Commission’s efforts.[7]

Relegating the largest single group of institutional investors to the role of onlookers in the face of securities fraud is not the path to maintaining a robust and trustworthy capital market. Mutual funds would often do well to adopt a more active role in protecting their investors.


[1] T.J. Maloney Chair and Professor of Law at Fordham University School of Law.

[2] Assistant Professor of Law, University of Southern California Gould School of Law.

[3] Griffith, Sean J., and Lund, Dorothy S., Toward a Mission Statement for Mutual Funds in Shareholder Litigation (July 19, 2019), Univ. of Chicago L. Rev., Forthcoming; European Corporate Governance Institute–Law Working Paper No. 468/2019; USC CLASS Research Paper No. CLASS19-23; USC Law Legal Studies Paper No. 19-23. Available at SSRN:

[4] Id. at 48.

[5] Roy and Skinner are partners at Ropes & Gray LLP.

[6] H.R. Rep No. 104-369, at 31 (1995).

[7] Aguilar, Luis A., Statement by Commissioner: Defrauded Investors Deserve Their Day in Court, Secs. & Exchange Comm., Apr. 11, 2012, available at

Consumer lending as we know it today – and credit card lending in particular – depend on securitization for significant access to capital. However, the ability of banks to bundle and sell credit card debt-backed securities may be thrown into disarray depending on the outcomes of a pair of pending cases: Cohen v. Capital One Funding, LLC[1] and Cohen v. Chase Card Funding, LLC.[2]

The outcomes of these matters will likely turn on the application of a 2015 decision by the 2nd Circuit Court of Appeals regarding a statute that is more than 150 years old: the National Bank Act of 1864 (“NBA”).

The Supreme Court has stated that the NBA preempts state laws that “significantly interfere” with a “national bank’s exercise of its powers,”[3] a ruling that has been applied to cover state usury laws that set maximum rates of interest. As a result, a bank must comply with the usury law of the state “in which the bank [is] located”[4] – if the borrower moves to a state with a lower rate cap, the interest rate remains valid.

In 2015, the 2nd Circuit decided Madden v. Midland Funding, LLC.[5] In Madden, a Delaware-based bank had issued a loan to a New York borrower with an interest rate that complied with Delaware law.[6] The bank, however, then sold the loan to a debt purchaser. But because the purchaser was neither a national bank itself nor acting “on behalf of” a national bank, the 2nd Circuit found that New York’s usury law[7] did not “significantly interfere” with the bank and held that New York’s maximum interest rate cap applied.

Now, plaintiffs in Capital One and Chase Card seek to extend this reasoning to ABS that hold credit card debts. Because the debts are now owned by an independent trust, plaintiffs allege the credit card ABS entity has no right to assert that state usury laws preempt the interest rates being charged on the underlying debts.


Should plaintiffs prevail, banks’ ability to free up capital and spread risk across nonbank institutional investors would be severely hampered – and would likely face a period of upheaval as the effects on the billions of dollars of outstanding CCABS are sorted out.

The 2nd Circuit’s decision in Madden has sparked criticism from regulators[8] and at least two efforts in Congress to legislate a change to the ruling.[9] However, until such a change is enacted, market participants will have to watch the courses of Capital One and Chase Card.


[1] No. 19-cv-03479 (E.D.N.Y.).

[2] No. 19-cv-00741 (W.D.N.Y.).

[3] Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299, 313 (1978).

[4] Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 33 (1996).

[5] 786 F.3d 246 (2d Cir. 2015).

[6] 6 Del. C. § 2301 et seq.

[7] NY CLS Gen Oblig § 5-501 et seq.

[8] See, e.g., amicus brief of the F.D.I.C. and Office of Comptroller of the Currency, In re: Rent-Rite Super Kegs West Ltd., No. 19-cv-01552 (D. Colo.), dkt. no. 11.

[9] See, e.g., Sykes, J., Banking Law: An Overview of Federal Preemption in the Dual Banking System (Jan. 23, 2018), available at

We are proud to announce that our team achieved a key victory as plaintiffs’ pro bono counsel in Doe v. Esper, a constitutional challenge to the Pentagon’s transgender service policy. The government’s policy is to discharge or deny enlistment to anyone who will not serve in the gender to which they were assigned at birth, or who is undergoing hormone therapy or other gender-confirmation procedures.

The Hon. Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia granted our team’s motion to compel production of documents withheld by the Department of Defense (DOD) and other government defendants.  The court rejected the government’s argument that it should automatically be accorded a high level of deference because the policy resulted from military-decision-making, and ruled that “[a]dditional discovery is needed to determine if the [challenged Mattis] Plan is the product of considered military decision-making that reasonably and evenhandedly regulates the matter at issue.”

The judge further agreed that DOD could not invoke the deliberate process privilege, which protects documents revealing the process behind government decisions, because “[t]hose documents go to the heart of Defendants’ intent and decision-making process … — both key issues in establishing the legitimacy of the disputed transgender policy.” The opinion made clear that “Plaintiffs’ need for the information overcomes Defendants’ privilege.”

As noted in Lowenstein’s press release about the victory, we are pleased to contribute our trial skills to protect the rights of individuals fighting on behalf of our country.

In a case pending in federal court in New York, Kirschner v. JPMorgan Chase Bank, N.A., No. 17-cv-06334-PGG (S.D.N.Y.), a bankruptcy trustee may upend what has long been accepted wisdom on Wall Street: securities laws apply to stocks, bonds, equity options, and the like – but not to syndicated loans.

Kirschner is brought by the bankruptcy trustee on behalf of a group of “approximately 400 mutual funds, pension funds, universities, [CLO]s and other institutional investors,” and alleges that the banks that led Millennium Labs’ 2014 loan syndication violated state securities laws of California, Massachusetts, and Colorado, among other claims.

Syndicated loans, often referred to as “leveraged loans,” are term loans extended to companies by a group of lenders. Like corporate bonds, syndicated loans are debt instruments that entitle the holder to interest and principal.  However, unlike traditional securities, interests in a syndicated loan are not sold like a bond, but assigned to the new holder.  As a result, only current investors have standing to bring claims against the borrower.  Another difference is that syndicated loans are not offered through a risk-warning-laden prospectus, but rather a confidential information memorandum, or “CIM.”  The CIM is not a public document, and is generally only made available to lenders upon approval of the borrower.[1]

Enter privately-held Millennium Laboratories LLC, a San Diego-based company that performed urinalysis drug testing for Medicare, Medicaid programs, and commercial insurance companies.  In 2014, Millennium Labs teamed up with a group of banks to organize a $1.765 billion term loan to refinance older debt and pay out a substantial cash dividend to insiders.

Less than a year later, however, lenders found Millennium Labs besieged under a barrage of legal threats from federal regulators and civil litigants that would ultimately lead to the company’s bankruptcy – risks that the trustee in Kirschner asserts were well known to Millennium Labs and its bankers but fraudulently concealed from investors in the 2014 CIM.

As the true depth of these risks was revealed in late 2015 and early 2016, the market value of Millennium Labs’ loan fell sharply:

The secondary market price of Millennium Labs’ syndicated loan during 2016 highlights one of the hazards of this type of investment – as the extent and gravity of the company’s litigation risks were becoming known, Millennium reportedly refused to provide prospective lenders access to the CIM, leading to nearly three months in mid-2016 of no secondary market activity with lenders locked into their stale-priced positions:

As defendants point out in their motion to dismiss, federal courts have for some time agreed that bank loans such as these do not qualify as “securities” for purposes of federal securities laws, citing Banco Espanol de Credito v. Pacific National Bank, 973 F.2d 51 (2d Cir. 1992). Although the Second Circuit did affirm this lower-court determination in Banco Espanol de Credito, the panel cautioned: “We recognize that even if an underlying instrument is not a security, the manner in which participations in that instrument are used, pooled, or marketed might establish that such participations are securities.” Id. at 56.

Further, that ruling was delivered contrary to an amicus brief submitted by the Securities and Exchange Commission, eliciting a vociferous dissent by then-Chief Judge Oakes, who noted:“I fear that the majority opinion misreads the facts, makes bad banking law and bad securities law, and stands on its head the law of this circuit and of the Supreme Court….” Id.

Whether the analysis in Banco Espanol de Credito proves equally availing for purposes of the various state laws that the Trustee in Kirschner relies on remains to be seen.

Defendants’ motions to dismiss the claims in Kirschner have been fully briefed and both sides have requested oral argument.


[1] A publicly filed exhibit in Kirschner offers a rare look at a CIM.  See Decl. in Sup. of Mot. to Dismiss, Ex. B, Parts 1 & 2, Kirschner, No. 17-cv-06334-PGG, Dkt. Nos. 79-2 & 79-3 (S.D.N.Y. June 28, 2019).


Last week, Governor Cuomo signed into law a bill to amend the New York Civil Practice Law and Rules (“CPLR”) to extend the statute of limitations to six years for financial fraud claims brought under the Martin Act.  One of the strongest blue sky laws in the country, New York’s Martin Act gives wide latitude to the state’s Attorney General to investigate and prosecute financial fraud, both criminally and civilly.  The statute is a particularly useful weapon in the state’s arsenal, as it does not require the Attorney General to prove scienter, or fraudulent intent, in order to prevail.

Continue Reading New York Legislature Extends Statute of Limitations for Martin Act Claims

In December 2014, the credit risk retention rule, 79 Fed. Reg. 77,601 (the credit risk retention rule), was adopted pursuant to Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The credit risk retention rule requires any “securitizer” of asset-backed securities (or other related parties) to acquire and retain either (i) 5 percent of the face amount of each class of notes issued by the collateralized loan obligation (CLO), (ii) notes of the most subordinated class issued by the CLO representing 5 percent of the fair value of all CLO notes, or (iii) a combination of (i) and (ii) representing 5 percent of the fair value of all CLO notes. The rule was designed to align the interests of the managers and investors in a CLO deal.

Continue Reading CLO Litigation Update

Foreign securities class actions have been on the rise since the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, Ltd., which held that federal securities laws apply only to securities purchased on domestic exchanges. 561 U.S. 247 (2010). Investors are increasingly turning to foreign forums to recoup losses associated with securities purchased or sold outside of the U.S. In addition to differences in substantive and procedural law, certain foreign jurisdictions have laws on how litigation is funded, which make for significant practical distinctions as compared with U.S. class action participation.

Continue Reading Third-Party Litigation Funding Fuels Foreign Securities Class Actions

Last month, the U.S. Court of Appeals for the Second Circuit upheld a 2014 ruling holding issuers of residential mortgage-backed securities (RMBS) liable for securities fraud. In the opinion by U.S. Circuit Judge Richard C. Wesley, the court emphasized the policies underlying the passage of the Securities Act of 1933 and related state laws, which aim to protect securities purchasers by imposing a duty on sellers of securities to disclose all material information before such public offerings.

Continue Reading Second Circuit Affirms $806 million Judgment Against Nomura and RBS