In the recent decision of In re Application of Mesa Power Group, LLC the US District Court for the Southern District of Florida permitted an applicant to obtain evidence from a third party under Title 28, Section 1782 of the US Code ('1782 application') to support claims that the applicant had brought in a North American Free Trade Agreement (NAFTA) arbitration.(1)
The Mesa Power ruling is significant for international arbitration practitioners because it represents a developing area of NAFTA practice and demonstrates the increasing importance of 1782 applications in international arbitration.
Title 28 USC Section 1782 permits US federal district courts to order third parties located in the United States to produce evidence in support of proceedings before a foreign tribunal, even if that discovery could not be obtained in the foreign proceeding itself.(2) The landmark 2004 Supreme Court decision, Intel v Advanced Micro Devices, Inc, clarified that the word 'tribunal' as it is employed in Section 1782 "'is not confined to proceedings before conventional courts', but extends also to 'administrative and quasi-judicial proceedings'",(3) which courts have subsequently determined can include both private and public international arbitral tribunals.
In Intel the Supreme Court set out the following four factors for district courts to consider when entertaining 1782 applications:
- whether the person from whom discovery is sought is a participant in the foreign proceeding;
- whether the foreign tribunal is receptive to the application;
- whether the discovery sought is an attempt to "circumvent foreign proof-gathering restrictions"; and
- whether the discovery sought is "unduly intrusive or burdensome".(4)
Under Intel 1782 applications remain discretionary, and courts are not required to order the discovery sought even if the application satisfies the four factors listed above.
In Mesa Power the applicant (Mesa Power) moved ex parte to obtain evidence to support its NAFTA arbitration. In the underlying NAFTA arbitration, Mesa Power claimed that the government of Ontario had unexpectedly changed the rules for awarding certain governmental contracts, and that those changes allegedly prevented Mesa Power from obtaining contracts with the Ontario Power Authority while Mesa Power's competitors could still obtain them. (5) Specifically, Mesa Power claimed that the government of Ontario's actions violated:
- NAFTA Article 1102 (by providing more favourable treatment to a domestic company in like circumstances);
- Article 1103 (by providing more favourable treatment to a non-NAFTA party in like circumstances); and
- Article 1106 (by imposing a variety of allegedly prohibited requirements to the power purchase scheme).(6)
To support its claims in the arbitration, Mesa Power filed the 1782 application without notice against a competitor named NextEra that had successfully secured contracts under the revised governmental contracting programme.(7) Through its 1782 application, Mesa Power sought to obtain NextEra's communications with the government of Ontario, Canadian lobbyist groups and other third parties about bid process rules.(8) Mesa Power also sought to depose seven of NextEra's senior executives.(9) On December 6 2011 the court granted Mesa Power's 1782 application without explanation.
Shortly after the 1782 application was granted and NextEra was notified of the order, it moved to quash discovery on the grounds that it was contrary to the discretionary Intel factors.(10) Specifically, NextEra claimed that Mesa Power failed to prove that the arbitral tribunal would accept the discovery sought and that the discovery might be "an attempt to circumvent the tribunals' proof-gathering mechanisms".(11) NextEra further argued that:
- the discovery requests were unduly burdensome;
- the documents sought were confidential; and
- the information sought in the seven depositions Mesa Power had requested could be provided by only one knowledgeable individual.(12)
The court rejected each of NextEra's arguments, holding that "careful review of the Intel factors strongly favors the court granting Mesa Power's application for judicial assistance".(13) Notably, the court stated that "although Intel did not resolve who must 'demonstrate receptivity or... nonreceptivity of a foreign tribunal', the party requesting judicial assistance does not have to prove receptivity to show that they are not attempting to circumvent foreign proof-gathering mechanisms".(14)
The court also rejected NextEra's "broad contention" that the discovery sought by the 1782 application was unduly burdensome.(15) The court found that the discovery sought by Mesa Power relates to the "central issue" in the NAFTA arbitration and that information therefore offered "evidentiary value" that would otherwise be unavailable to Mesa Power.(16)
Most significantly, the court rejected NextEra's "all-or-nothing discovery challenge" approach and signalled to future litigants that NextEra would have made a more effective showing had it sought to limit discovery, such as by identifying specifically which provisions were overly broad or by asserting a more appropriate and narrow scope.(17)
The court's decision in Mesa Power marks the second time in recent months that a 1782 application has succeeded under the Intel factors. In June the US Court of Appeals for the 11th Circuit granted a 1782 application in In re Consorcio Ecuatoriano de Telecomunicaciones SA v JAS Forwarding (USA), Inc.(18) In that action, the 11th Circuit determined that a private arbitration tribunal in Ecuador qualified as a 'tribunal' within the applicable statutory language.(19)
This suggests that the role of 1782 applications in international arbitrations will continue to broaden, particularly now that the 11th Circuit's receptivity has been tested and proven twice in short order. Parties engaged in international arbitrations where third parties in the United States may have custody or control over relevant information will find 1782 applications particularly useful, as US discovery tends to be much broader than that permitted in other legal systems.
Practitioners should closely follow the subsequent development of 1782 applications in the federal courts in order to understand the further development and usefulness of this pro-discovery stance with regard to international arbitrations.
For further information on this topic please contact JP Duffy or Kiran N Gore at DLA Piper by telephone (+1 212 335 4500), fax (+1 212 335 4501) or email (email@example.com or firstname.lastname@example.org).
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(1) 11–24335–CIV, 2012 WL 2886827 (SD Fla July 13 2012).
(2) 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", (28 USC §1782).
(3) 542 US 241, 249 (2004).
(4) 542 US at 264-65.
(5) Mesa Power, 11–24335–CIV, 2012 WL 2886827 at 2.
(6) See Mesa Power Group Files Legal Action Against Canadian Government for NAFTA Infractions, July 14 2011 (available at www.mesapowergroup.com/index.php/news, September 23 2012).
(7) Mesa Power, No 11–24335–CIV, 2012 WL 2886827 at 2.
(13) Id at *4.
(14) Id at *5.
(15) Id at 6.
(16) Id at 6-7.
(17) Id at 7 ("NextEra may have been better served by simply seeking to 'limit discovery[,] identifying the terms of the written request that [were] overly broad[,] or asserting how the scope of the request should be narrowed,' in accordance with Eleventh Circuit guidance." (internal citations omitted)).
(18) 685 F 3d 987 (11th Cir 2012).
(19) Id at 995 "[W]hile the Supreme Court in Intel was not tasked with specifically deciding whether a private arbitral tribunal falls under the statute, its broad functional construction of the term 'tribunal' provides us with substantial guidance. Consistent with this functional approach, we examine the characteristics of the arbitral body at issue, in particular whether the arbitral panel acts as a first-instance adjudicative decisionmaker, whether it permits the gathering and submission of evidence, whether it has the authority to determine liability and impose penalties, and whether its decision is subject to judicial review... The pending arbitration between JASE and CONECEL meets the functional criteria articulated in Intel." (Internal citations omitted.)