Recent US court decisions confirm that 28 U.S.C. § 1782 can be a powerful evidentiary tool for US and foreign parties embroiled in disputes outside of the United States. Fundamentally, this statute permits US-style discovery in aid of a “proceeding in a foreign or international legal tribunal.”1 Such discovery could involve depositions, interrogatories, requests for admission, and document requests. While Section 1782 discovery can be a helpful (or much feared), part of any trial held in a courthouse outside of the United States, it remains uncertain whether this instrument is available to support foreign arbitrations, an alternative dispute resolution mechanism increasingly selected for settling business-to-business as well as investor-State disputes. This ambiguity stems from a 2004 US Supreme Court decision, Intel Corp. v. Advanced Micro Devices, Inc.,2 which opened the door to the possibility – previously rejected by US courts – that a foreign arbitration proceeding qualifies as a “legal tribunal” under the statute.
Two recent US Circuit Court of Appeals decisions, both issued on January 10, 2014, highlight this continued uncertainty – and the opportunities parties have to improve or diminish access to Section 1782 discovery in the event of a future dispute.
First, in GEA Group AG v. Flex-N-Gate Corp., the 7th Circuit declined to weigh in on the question of whether a foreign arbitration proceeding qualifies as a “legal tribunal” under the statute, but noted the continued uncertainty.3 The decision stated that a German arbitration panel “might be considered such a tribunal. Or might not – the applicability of Section 1782 to evidence sought for use in a foreign arbitration proceeding is uncertain.”4
Second, in Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., the 11th Circuit similarly declined to directly address this issue. Instead, the court took the unusual step of sua sponte vacating its own prior opinion, in which it held that Section 1782 is available as a tool for gathering evidence in aid of a foreign arbitration.5 The 11th Circuit concluded that it did not need to reach this issue, because Section 1782 could be used to obtain the same discovery in aid of a separate contemplated civil litigation.6
Nonetheless, the 11th Circuit signaled that it remains receptive to the use of Section 1782 discovery in aid of foreign arbitrations. The court noted two factors in Intel that support this application. First, the US Supreme Court used a “functional analysis” test to determine whether a body is a tribunal – considering whether it “acts as a first-instance adjudicative decision maker, permits the gathering and submission of evidence, has the authority to determine liability and impose penalties, and issues decisions subject to judicial review.” The 11th Circuit suggested that trial courts should examine the nature and characteristics of a foreign arbitral proceeding to determine whether it meets this test for Section 1782 discovery. Second, the Supreme Court suggested, in dicta, that tribunals include “arbitral tribunals.”7
In light of these decisions, savvy parties will carefully consider the potential for future Section 1782 discovery when engaging in negotiations and addressing disputes with their private or public sector counterparties.
The availability of Section 1782 discovery could be a tremendous asset, or it could thwart the cost-savings that forum selection clauses are often designed to achieve. There are several steps that clients can take depending on their preference for access to Section 1782 discovery.
First, clients negotiating agreements with private or public foreign counterparties might consider tapping into the current ambiguity in the US courts by selecting arbitral forums for dispute resolution. This approach might reduce the client’s exposure to Section 1782 discovery, unless, of course, the client, or witnesses and documents relevant to a dispute involving the client, are located in a US district court that supports a broader application of the statute. This is a significant caveat since a majority of US district courts have concluded that foreign arbitrations are tribunals as meant under the statute.8
Second, clients might consider adding language to their agreements either confirming, or limiting, the right to obtain or use foreign discovery in the contemplated arbitral proceeding. Such language may be persuasive to a district court. However, its enforceability is untested.
Third, if clients wish to have access to Section 1782 discovery, but lack a clear forum selection clause, they might consider commencing their action in a foreign court which will be readily identified by US courts as a “legal tribunal” for purposes of the statute.
Fourth, clients should carefully consider the case law of all of the potential US forums with respect to lodging a Section 1782 application. Under the statute, discovery is potentially available in any district where the discovery target either “resides” or “is found.”9
Finally, clients should carefully consider the full cost/benefit in utilizing Section 1782 in aid of a foreign arbitration. Invoking the statute may invite its use by an adversary and clients will likely be hard-pressed to maintain inconsistent positions as to the availability of the provision. This outcome is likely to be true even in a jurisdiction that has specifically rejected the use of Section 1782 in aid of foreign arbitrations. Citing judicial estoppel, the 5th Circuit has found that a Section 1782 application in aid of a foreign arbitration is available, despite its own contrary precedent, where the party opposing the discovery had pressed for its own Section 1782 discovery in aid of the same proceeding elsewhere.10