Texas Keystone, Inc. v. Prime Natural Resources, Inc.

Case: 12-20515 Document: 00511977189 Page: 1 Date Filed: 09/06/2012

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

September 6, 2012

No. 12-20515 Lyle W. Cayce

Summary Calendar Clerk

TEXAS KEYSTONE, INCORPORATED,

Plaintiff-Appellant,

v.

PRIME NATURAL RESOURCES, INCORPORATED; JAN VELDWIJK,

Defendants-Appellees.

Appeal from the United States District Court

for the Southern District of Texas

USDC No. 4:12-MC-357

Before KING, STEWART, and CLEMENT, Circuit Judges.

PER CURIAM:

Before the court is the appeal of Plaintiff-Appellant Texas Keystone,

Incorporated (“Texas Keystone”) from the district court’s grant of a motion to

quash certain discovery subpoenas. Texas Keystone argues that the district

court erred by granting the motion before Texas Keystone had an opportunity

to respond in opposition and by not providing any reasons on the record for its

decision. We VACATE and REMAND to the district court for further

proceedings.

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I. FACTUAL AND PROCEDURAL BACKGROUND

This appeal arises from a related case currently pending in the High Court

of Justice, Queen’s Bench Division, Commercial Court of London, England,

Claim No. 2010 Folio 1517 (the “UK Litigation”). This action came before the

district court under 28 U.S.C. § 1782, which provides that interested parties to

a foreign proceeding may apply to a United States district court to obtain

discovery relevant to the foreign litigation from a non-party located in the

United States. Factual contentions in the UK Litigation bear directly on the

appeal of the discovery order before this Court; thus, the factual background for

that case is warranted before addressing the litigation in the Southern District

of Texas.

A. The UK Litigation

In the UK Litigation, Excalibur Ventures LLC (“Excalibur”) has asserted

several contractual and related claims against Texas Keystone, as well as

several other defendants (collectively “Defendants”). Excalibur is not a party to

the appeal before this Court. The UK Litigation arises, in part, from disputes

over agreements related to the exploration, development, and operation of oil

blocks in Kurdistan, Iraq, including: (1) Texas Keystone and Defendants’ alleged

failure to comply with a collaboration agreement between Excalibur and Texas

Keystone; and (2) Texas Keystone and Defendants’ failure to recognize

Excalibur’s alleged interests in certain production sharing contracts (“PSCs”)

between, inter alia, the Defendants and the Kurdistan Regional Government

(“KRG”).

On February 16, 2006, Texas Keystone and Excalibur entered into a

collaboration agreement in which the parties agreed, inter alia, to act in

consortium to present “Consortium Bids,” or joint bids, to the KRG for

“Concessions” relating to petroleum blocks in Kurdistan (the “Collaboration

Agreement”). The Collaboration Agreement defines “Concessions” as a license,

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production sharing agreement, buy back, or any other similar concession. The

Collaboration Agreement provides that, if Texas Keystone and Excalibur both

were awarded a Concession, they would enter into a “Joint Operating

Agreement” relating to the petroleum block. Texas Keystone and Excalibur

agreed that they would bear their share of the costs and expenses under the

Joint Operating Agreement and the Collaboration Agreement. The

Collaboration Agreement also states that Excalibur and Texas Keystone “shall

conduct operations in compliance with all relevant laws and regulations of all

jurisdictions having jurisdiction over the Parties and/or the Transactions

contemplated by this Agreement,” including the United States and Iraq. The

Collaboration Agreement releases the parties from its obligations under the

contract in the case of a “Force Majeure” event, which includes a situation where

the award of the concession is precluded by “any laws, rules regulations or

orders of national or other governmental agencies or bodies having jurisdiction

in or in respect of Iraqi Kurdistan.”

Following their execution of the Collaboration Agreement, Texas Keystone

and Excalibur together attempted to obtain a Concession from the KRG to

explore, develop, and operate an oil field known as the Shaikan Block in

Kurdistan. On August 6, 2007, the KRG passed the Oil and Gas Law of the

Kurdistan Region, Law No (22) 2007 (the “Oil and Gas Law”). Because of Texas

Keystone’s view that Excalibur was unable to qualify to participate in oil

exploration or production ventures in Kurdistan under the new Oil and Gas

Law, Excalibur was not a party to a concession with the KRG relating to the

Shaikan Block or any other oil fields in Kurdistan. On November 6, 2007, the

KRG granted a PSC for the Shaikan Block to Texas Keystone and others, but not

to Excalibur (the “Shaikan PSC”).

On December 17, 2010, Excalibur brought suit against Texas Keystone

and others in the UK Litigation, alleging that it had been excluded unjustly from

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the Shaikan PSC and that it was entitled to an interest in the PSC, even if it

was not a party to the PSC. Excalibur has asserted various contractual and tort

claims, as well as other claims under English law. Texas Keystone has raised

several defenses to Excalibur’s claims, two of which are relevant to the instant

appeal.

Texas Keystone’s first relevant defense in the UK Litigation is that, under

Article 24 of the Oil and Gas Law, Excalibur could not qualify to participate in

oil exploration because, according to Texas Keystone, Excalibur: (1) was not a

foreign petroleum company; (2) did not have the financing capability, technical

knowledge, and technical ability to carry out petroleum operations and had not

submitted reliable documents to prove the same; and (3) did not have a record

of compliance with principles of good corporate citizenship. Excalibur disputes

these assertions but claims that it is entitled to its interest in the PSC even if it

could not be a party to the PSC. Accordingly, Texas Keystone seeks discovery

that would illuminate these contentions.

Texas Keystone’s second relevant defense in the UK Litigation is that

Excalibur did not have the necessary financing to meet its obligations under the

Collaboration Agreement for participation in the Shaikan PSC. While there is

a dispute as to exactly what financing Excalibur claimed it had, most germane

here is Excalibur’s repeated assertion that Appellee Prime Natural Resources

Incorporated (“Prime”) was willing to provide the necessary funding. However,

Excalibur also asserts that it was unable to secure financing definitively because

of Texas Keystone’s refusal to recognize Excalibur’s rights to the Shaikan PSC.

Thus, another one of the discovery issues from Texas Keystone’s perspective is

the veracity of Excalibur’s claim that it had this offer of financing from Prime

and the reasons why Excalibur was unable to secure it.

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B. The Litigation in the Southern District of Texas

In an effort to obtain discovery to support its defenses in the UK

Litigation, Texas Keystone filed an application in the Southern District of Texas

on June 8, 2012, in which it sought authorization to subpoena documents and

testimony from Prime, pursuant to 28 U.S.C. § 1782. Section 1782 allows

interested persons access to discovery orders for the purpose of obtaining

evidence for use in foreign proceedings. In support of its Section 1782

application, Texas Keystone filed a nineteen-page memorandum of law and

exhibits indicating why the subpoenas were relevant to the UK Litigation.

Texas Keystone principally seeks discovery from Prime relating to Prime’s

financing negotiations and decision-making process with respect to Excalibur

and the Shaikan PSC, as well as other oil fields.

The district court granted Texas Keystone’s application to seek discovery

on June 8, 2012, the same day Texas Keystone filed the application. As a result,

Texas Keystone was authorized to issue discovery subpoenas to Prime. Prime

accepted service of the subpoenas on June 21, 2012, and the subpoenas were

returnable on July 10, 2012. On July 9, 2012, Texas Keystone agreed to give

Prime until July 13, 2012 to produce documents pursuant to the subpoenas and

to postpone depositions until Texas Keystone had an opportunity to review the

documents Prime produced. Instead of producing the documents, however,

Prime filed a Motion to Quash on July 11, 2012. In the Motion to Quash, Prime

argues that the requests contained in the subpoenas are invasive, unduly

burdensome, and irrelevant. The next day, on July 12, 2012, the district court

issued a written order granting the Motion to Quash without providing Texas

Keystone an opportunity to respond to the motion. The clerk did not enter the

order until July 16, 2012. The full text of the district court’s order states, “[t]he

subpoenas by Texas Keystone to Prime Natural Resources, Inc., and Jan

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Veldwijk1 issued in claim 2010 Folio 1517 in the High Court of Justice in

London, England, are quashed.”

Texas Keystone timely filed its notice of appeal with this court on July 26,

2012. On August 2, 2012, we entered an order expediting the appeal due to the

upcoming trial date of October 8, 2012 in the UK Litigation, with the first

opening brief due September 21, 2012. Briefing was completed on August 21,

2012, and the record on appeal was filed on August 23, 2012. Texas Keystone

seeks reversal of the district court’s order and requests that we not remand, but

rather decide the merits of the discovery dispute because of the impending trial

date. Texas Keystone also has filed a Motion to Supplement the Record in order

to assist us in reaching the merits.

II. DISCUSSION

A. Jurisdiction

The district court had subject matter jurisdiction under 28 U.S.C. § 1331.

This Court has jurisdiction under 28 U.S.C. § 1291. While a discovery order

generally is not a final, appealable order under Section 1291, we have held that

we “[have] jurisdiction over an otherwise unappealable order if the appellant

demonstrates that the order (1) conclusively determines the disputed question,

(2) resolves an important issue completely separate from the merits of the action,

and (3) is effectively unreviewable on appeal from a final judgment.” Goodman

v. Harris Cnty., 443 F.3d 464, 468 (5th Cir. 2006) (citation and internal

quotation marks omitted); see also Wiwa v. Royal Dutch Petroleum Co., 392 F.3d

812, 815-16 (5th Cir. 2004) (noting that “we have jurisdiction over the denial of

a discovery order directed to a non-party to an underlying lawsuit pending in

another circuit”). These elements are met here, where: 1) the controversy is the

discovery dispute; 2) the matter involves procedural due process and discovery

1

Jan Veldwijk is Prime’s Chief Executive Officer.

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issues, which are separate from the merits of the underlying contractual and tort

claims; and 3) the district court’s order is effectively unreviewable because there

is no other recourse for reviewing the order, since the merits litigation is in a

foreign jurisdiction. Cf. Wiwa, 443 F.3d at 816 (asserting jurisdiction over a

discovery order, in part, because “[a]ny appeal of the Texas district court’s denial

lies only with this court”). Thus, jurisdiction is proper here.

B. The District Court’s Grant of Prime’s Motion to Quash Texas

Keystone’s Subpoenas

Texas Keystone argues that the district court abused its discretion by not

allowing Texas Keystone an opportunity to respond to Prime’s Motion to Quash

prior to ruling on the motion and by not providing any reasons for the reversal

of its order authorizing the subpoenas just one month earlier. Further, Texas

Keystone asserts that Prime has failed to meet its burden of showing why the

requested information in the subpoenas is irrelevant or burdensome to produce.

Prime argues that Texas Keystone had a meaningful opportunity to be

heard because Texas Keystone’s memorandum in support of its application for

authorization of its subpoenas under 28 U.S.C. § 1782 more than adequately

demonstrated Texas Keystone’s reasons for seeking the subpoenas. Prime also

argues that the district court did not abuse its discretion because Prime’s Motion

to Quash clearly shows that the documents and testimony that Texas Keystone

seeks are irrelevant and that the requests are burdensome to Prime.

Before addressing our review of the district court’s decision, an overview

of 28 U.S.C. § 1782 is necessary in order to provide a context for the procedural

posture of the case below and for Prime’s arguments in opposition.

1. 28 U.S.C. § 1782

Section 1782 allows an interested party to a foreign proceeding to apply

to a United States district court in order to obtain discovery related to the

foreign proceeding where the source of the discovery is not a party to the foreign

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proceeding and can be found within the jurisdiction of the district court. It

provides, in relevant part:

The 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 . . . . To the extent that the order

does not prescribe otherwise, the testimony or

statement shall be taken, and the document or other

thing produced, in accordance with the Federal Rules of

Civil Procedure.

28 U.S.C. § 1782(a). Thus, once an interested party makes the requisite showing

that it has met the statutory factors, the district court judge has the discretion

to grant the application seeking the authority to issue subpoenas. Intel Corp. v.

Advanced Micro Devices, Inc., 542 U.S. 241, 247 (2004) (“[Section] 1782(a)

authorizes, but does not require, a federal district court to provide judicial

assistance to foreign or international tribunals or to ‘interested person[s]’ in

proceedings abroad.”).2 Several courts have observed that this discretion is

informed by the “twin aims of the statute,” which are “to provide efficient means

of assistance to participants in international litigation in our federal courts and

2

In addition to these statutory factors, “[t]he Supreme Court has suggested that

district courts should consider [several discretionary factors]: (i) whether the person from

whom discovery is sought is a participant in the foreign proceeding, since nonparticipants in

the foreign proceeding may be outside the foreign tribunal’s jurisdictional reach and therefore

their evidence may be unobtainable absent § 1782(a) aid, (ii) the nature of the foreign tribunal,

the character of the proceedings underway abroad, and the receptivity of the foreign

government or the court or agency abroad to U.S. federal-court judicial assistance, (iii)

whether the § 1782(a) request conceals an attempt to circumvent foreign proof-gathering

restrictions or other policies of a foreign country or the United States, and (iv) whether the §

1782(a) request is unduly intrusive or burdensome.” Ecuadorian Pls. v. Chevron Corp., 619

F.3d 373, 376 n.3 (5th Cir. 2010) (citing Intel, 542 U.S. at 264-67) (internal quotation marks

omitted).

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to encourage foreign countries by example to provide similar means of assistance

to our courts.” In re Ishihara Chem. Co., 251 F.3d 120, 124 (2d Cir. 2001),

abrogated on other grounds by Intel, 542 U.S. 241 (citation and internal

quotation marks omitted); Intel, 542 U.S. at 247 (“Section 1782 is the product of

congressional efforts, over the span of nearly 150 years, to provide federal-court

assistance in gathering evidence for use in foreign tribunals.”).

Additionally, several circuits have elaborated on the threshold standard

that Section 1782 establishes. “[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. The manner in which discovery proceeds will be determined by normal

discovery rules.” Govt. of Ghana v. ProEnergy Servs., LLC, 677 F.3d 340, 343

(8th Cir. 2012). The Seventh Circuit has stated:

The section 1782 screen . . . is designed for preventing

abuses of the right to conduct discovery in a federal

district court for use in a foreign court. Once the court

has determined that such abuses are unlikely, the

ordinary tools of discovery management, including [Fed.

R. Civ. P.] 26, come into play; and with objections based

on the fact that discovery is being sought for use in a

foreign court cleared away, section 1782 drops out.

Heraeus Kulzer, GmbH v. Biomet, Inc., 633 F.3d 591, 597 (7th Cir. 2011)

(internal quotation marks omitted).3 In light of the foregoing, the Federal Rules

of Civil Procedure governed the underlying discovery requests once the district

court granted Texas Keystone’s Section 1782 application.

2. Motion to Quash

3

See also Weber v. Finker, 554 F.3d 1379, 1384 (11th Cir. 2009) (“Once discovery is

authorized under § 1782, the federal rules, Fed. R. Civ. P. 26–36, contain the relevant

practices and procedures for the taking of testimony and the production of documents.”).

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We review a district court’s grant of a motion to quash for abuse of

discretion and will affirm the district court’s decision unless it is “arbitrary or

clearly unreasonable.” Wiwa, 392 F.3d at 817. Under Rule 45 of the Federal

Rules of Civil Procedure, “a court may quash or modify a subpoena if [the

subpoena] (1) fails to allow a reasonable time for compliance; (2) requires a

person who is not a party to travel more than 100 miles from where the person

resides; (3) requires disclosure of privileged or protected matter; or (4) subjects

a person to undue burden.”4 Id. at 817-18 (citing Fed. R. Civ. P. 45(c)(3)). In its

Motion to Quash, Prime’s objections to Texas Keystone’s subpoenas arise under

the fourth factor, undue burden.

Texas Keystone relies on our decision in Sandsend Financial Consultants

v. Federal Home Loan Bank Board, 878 F.2d 875 (5th Cir. 1989), to argue that

the district court abused its discretion by granting the Motion to Quash before

providing Texas Keystone an opportunity to respond to the motion. Texas

Keystone also cites Wiwa v. Royal Dutch Petroleum Company, 392 F.3d 812 (5th

Cir. 2004), to argue that the district court abused its discretion by providing no

reasons on the record for its grant of the Motion to Quash. We address each

argument in turn.

In Sandsend, the Federal Home Loan Bank Board (“FHLBB”) issued a

subpoena for bank records pursuant to its statutorily-authorized investigatory

powers. Sandsend, 878 F.2d at 878. The account holder filed a motion to quash

the subpoena and the district court granted the motion before the FHLBB’s time

to respond had expired. Id. at 877. The case had two alternative holdings.

First, we held that the district court committed reversible error by failing to

comply with certain requirements of the Right to Financial Privacy Act

(“RFPA”), 12 U.S.C. § 3401 et seq., before granting the motion to quash. Second,

4

While Rule 45 has been amended since Wiwa was decided, the substance of this

provision has remained the same.

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we held that, even in the absence of the RFPA, the district court erred by not

providing the FHLBB an opportunity to respond to the motion. Regarding the

latter holding, this court stated:

For the sake of brevity, we notice only two of the court’s

procedural errors, either of which would be dispositive.

In ruling on Sandsend’s motion to quash before the

FHLBB’s time to respond had expired, the court erred

twice: it neglected to follow the RFPA’s procedures for

resolving a customer challenge and it denied the

FHLBB an opportunity to respond . . . . Even without

Section 3410(b) [the provision of the RFPA that the

district court failed to comply with], the district court’s

action constituted error, for it denied the FHLBB an

opportunity to be heard. We may reverse the district

court on these grounds alone.

Sandsend, 878 F.2d at 881 (internal footnotes and citations omitted) (emphasis

added). Thus, under Sandsend, the district court here abused its discretion

when it failed to provide Texas Keystone an opportunity to respond to Prime’s

Motion to Quash.

Moreover, in Wiwa, the district court granted a motion to quash and

denied a motion to compel directed at a non-party to the underlying litigation,

and it provided no reasons, written or oral, for its decision. Wiwa, 392 F.3d at

815. This court stated:

In circumstances analogous to this situation–appellate

review of a denial of a motion for abuse of discretion–we

and other courts have held that a district court’s denial

of such a motion, unaccompanied by reasons–either

written or oral–may constitute an abuse of discretion.

Here, the district court quashed the subpoena and

denied the motion to compel outright without providing

oral or written reasons for doing so. Neither did the

district court attempt to explain any deficiencies in

either the subpoena or the motion so that [the non-

moving party] might have an opportunity to cure any

defects. Nor did the district court attempt to modify the

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subpoena to cure any overbreadth; the district court

even failed to set or hold a hearing on the breadth of the

subpoena. There is no record evidence that the district

court considered and applied the factors . . . [for]

determin[ing] whether the subpoena is overbroad. We

hold that this constitutes an abuse of discretion under

the circumstances present here.

Id. at 818-19 (acknowledging that “[g]enerally, modification of a subpoena is

preferable to quashing it outright”). We held that the district court abused its

discretion by quashing the subpoena and granting the motion to compel outright

without giving any reasons for its decision. Id. at 819. Therefore, based on

Wiwa, the district court here also abused its discretion by providing no reasons

for its decision granting the Motion to Quash.

Prime attempts to distinguish Sandsend and Wiwa by arguing that: 1)

neither case involved a Section 1782 application; and 2) unlike the parties in

Sandsend and Wiwa, Texas Keystone had a meaningful opportunity to be heard

in its nineteen-page Section 1782 application and accompanying exhibits.5

However, Prime’s arguments are unavailing for several reasons.

First, as the foregoing discussion of Section 1782 demonstrates, the normal

federal discovery rules applied once Texas Keystone made the requisite showing

in its Section 1782 application. See, e.g., Heraeus Kulzer, 633 F.3d at 597 (noting

that “with objections based on the fact that discovery is being sought for use in

a foreign court cleared away, section 1782 drops out”). Therefore, the fact that

a case involves a discovery request pursuant to this authority is not a

distinguishing factor for assessing the request on the merits. Second, Texas

Keystone submitted its application in order to meet the threshold standard

5

Prime also argues that Sandsend is distinguishable because it held that the district

court abused its discretion when it violated the RFPA. However, as we have observed already,

Sandsend pronounced alternative holdings, one premised on the failure to comply with RFPA

and one based on a violation of procedural due process.

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under Section 1782, not in defense of a motion to quash, which requires a

different analysis under the Federal Rules of Civil Procedure. Texas Keystone

did submit a Section 1782 application supported with material related to the

principal issues involved in the case, but it was not defending against a specific

motion to quash or other objection at the time. Third, it is no answer to say that

Texas Keystone had an opportunity to respond due to its Section 1782

application since we do not know whether the district court relied on this filing

when granting the Motion to Quash. Indeed, there is no record evidence that the

district court analyzed the factors for assessing whether Texas Keystone’s

discovery requests were in fact unduly burdensome to Prime. Nor did the

district court endeavor to modify the subpoenas. Accordingly, on the authority

of Sandsend and Wiwa, we hold that the district court abused its discretion by

failing to provide Texas Keystone an opportunity to respond to the Motion to

Quash and by providing no reasons for its decision.

We do not reach the question of how this court should modify the subpoena

or otherwise address the merits of the Motion to Quash. Instead, we remand to

the district court to adjudicate these issues in the first instance.6

III. CONCLUSION

For the foregoing reasons, we VACATE the district court’s order and

REMAND with instructions to allow Texas Keystone a reasonable period to

respond to the Motion to Quash and, thereafter, to provide written or oral

reasons for the basis of its ruling. Otherwise, the district court is fully

empowered to exercise its discretion under the Federal Rules of Civil Procedure

to resolve these discovery disputes in a manner not inconsistent with this

opinion. Any appeal from the district court’s decision on remand will be to this

panel and will be expedited.

6

Accordingly, we also do not address Texas Keystone’s Motion to Supplement the

Record.

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