Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?
Twenty-one years ago, both the Second and Fifth U.S Circuit Courts of Appeals decided that the phrase “foreign and international tribunal” in 28 U.S.C. §1782(a) did not include private international arbitration tribunals. Consequently, these cases held that U.S. District Courts could not provide judicial assistance in obtaining evidence for use in private international arbitrations.
Those longstanding cases now have been joined by others, elsewhere, and the result is a circuit split that may be headed for a U.S. Supreme Court hearing.
First, the history. National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184, 191 (2nd Cir. 1999) (available here) (referred to below as “NBC”) was decided on Jan. 26, 1999, and soon after, on March 17, 1999, the Fifth Circuit came to the same conclusion excluding private arbitration tribunals from Section 1782 in Republic of Kazakhstan v. Biedermann Int’l., 168 F.3d 880, 883 (5th Cir. 1999) (available here) (“Biedermann”).
It was not until Sept. 19, 2019, that another federal appeals court weighed in on this issue. The Sixth Circuit reached the opposite conclusion in In re Application to Obtain Discovery for Use in Foreign Proceedings (Abdul Latif Jameel Transp. Co. Ltd. v. FedEx Corp.), 939 F.3d 710 (6th Cir. 2019) (available here) (“ALJ”). The opinion created a circuit split with ghed in and followed the Sixth Circuit’s holding. In Servotronics Inc. v. Boeing Co., 954 F.3d 209, 216 (March 30, 2020) (available here), the Fourth Circuit allowed discovery for use in a private international arbitration pending in England, before an arbitral tribunal acting under the rules of the Chartered Institute of Arbitrators.
In a motion to stay issuance of the mandate, Rolls-Royce, the claimant in the English arbitration, represented that it intended to file a petition for certiorari to the Supreme Court by June 28, just as this issue of Alternatives was going to press. (The Fourth Circuit denied the stay.) As a result, the Supreme Court will soon have an opportunity to resolve the current circuit split.
In fact, there is a lot of federal appellate action on Section 1782. There are four other cases now pending in the Second, Third, Seventh and Ninth circuits.
Second Circuit: Guo v. Deutsche Bank Securities Inc., Case No. 19-781 (Docket information available here)—Argued on Feb. 28 before Circuit Judges Debra Ann Livingston and Michael H. Park and, sitting by designation, Connecticut Chief U.S. District Court Judge Stefan R. Underhill. The case is an appeal from a decision of New York Southern District Court Judge Jesse M. Furman. The case involves an arbitration with China International Economic and Trade Arbitration Commission, best known as CIETAC, in China. The appellant argued that the Supreme Court’s 2004 Intel decision—discussed below—requires the NBC case to be overruled.
Third Circuit: EWG Gasspeicher GMBH v. Halliburton Co., Case No. 20-1830—Notice of Appeal filed on April 16, 2020, from a March 17 decision (available here), by Delaware U.S. District Court Judge Richard G. Andrews, who denied Section 1782 application for use in an arbitration under the German Arbitration Institute (DIA) rules, following NBC and Biedermann, and rejecting ALJ.
Seventh Circuit: Servotronics Inc. v. Rolls-Royce PLC, Case No. 19-1847 (docket available here)—Argued on Sept. 19, 2019, before Circuit Judges Diane S. Sykes, David F. Hamilton and Michael B. Brennan. Appeal from a decision by Illinois Northern Senior District Court Judge Elaine E. Bucklo, who denied a Section 1782 application for use in an English arbitration under the Chartered Institute of Arbitrators rules, following NBC and Biedermann, which was decided prior to ALJ. This case is parallel to and involves the same parties as the Fourth Circuit’s Servotronics case. In fact, Servotronics had filed parallel federal court Section 1782 applications seeking evidence from Boeing in Chicago and in Charleston, S.C., on the same day, Oct. 26, 2018.
Ninth Circuit: HRC-Hainan Holding Co. LLC v. Hu, Case No. 20-15371—Notice of Appeal filed on Feb. 28, 2020, from a decision by Northern California U.S. District Court Magistrate Judge Thomas S. Hixson (on consent), who granted Section 1782 application for use by a CIETAC arbitral tribunal in Beijing, China, following ALJ and rejecting NBC and Biedermann.
All of the post-NBC and Biedermann cases, including ALJ and Servotronics, address and analyze the seminal Supreme Court decision, Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) (available here).
Intel is the only Section 1782 case to be considered by the nation’s top Court. In that case, Intel’s arch competitor, Advanced Micro Devices, had filed an application for discovery under Section 1782 from Intel in California’s Northern District. AMD was seeking to provide evidence in support of its antitrust complaint pending before the European Commission’s Directorate-General for Competition.
In a 7-1 opinion, Justice Ruth Bader Ginsberg held for the Court that the Directorate-General constituted a “foreign or international tribunal” within the meaning of Section 1782.
But relevant to the issue of whether a private international tribunal is a “foreign or international tribunal,” Ginsberg’s opinion included a favorable reference to a 1965 law review article by Columbia Law School Prof. Hans Smit regarding Section 1782’s 1964 amendment. The article, “International Litigation under the United States Code,” 65 Columbia L. Rev. 1015 (1965) (available with registration here), included what is now a famous footnote—FN 71—which reads as follows:
71. The term “tribunal” embraces all bodies exercising adjudicatory powers, and includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts. See Senate Report 7-8. On the use of the term tribunal in other sections of the Act, see notes 36-38, 53 supra and accompanying text.
The same law review article by Prof. Smit also made reference to the 1964 changes to Section 1781 governing letters rogatory—that is, a formal request from a court with a pending action to a foreign court to perform a judicial action. That section, as amended, uses the same phrase as does revision to Section 1782, “foreign and international tribunal.” With respect to Section 1781, the 1965 Smit article at page 2021 stated that the “term tribunal encompasses all bodies that have adjudicatory power, and is intended to include not only civil, criminal, and administrative courts (whether sitting as a panel or composed of a single judge), but also arbitral tribunals or single arbitrators.”
This citation to the Smit article has special significance because Smit was the Reporter for the Commission and Advisory Committee on International Rules on Judicial Procedure established by Congress in 1958, and whose work resulted in the amendments to Section 1782 in its current form in 1964 (regarding civil matters). Intel author Justice Ginsberg had served as a research associate and associate director with Smit at Columbia’s Project on International Procedure when Smit drafted the 1964 amendments to Section 1782.
About 25 years after the enactment of the 1964 amendments, Smit again commented on what, in his view, was “intended” by the change to Section 1782 from the prior reference to “courts” to the amendments reference to “foreign and international tribunals” in another article published in 1998 at 25 Syracuse Jour. Int’l. Law & Comm. 1:
The precursor of Section 1782 provided for the taking of a deposition “to be used in any judicial proceeding pending in any court.” Under that version, the assistance to be rendered had to be in aid of a judicial proceeding in a court. However, the present version of Section 1782 provides for assistance for use in “a foreign or inter-national tribunal.” The substitution of the work “tribunal” for “court” was deliberate, for the drafters wanted to make the assistance provided for available to all bodies with adjudicatory functions. Clearly, private arbitral tribunal come within the term the drafters used. This is also confirmed by the legislative history. (Footnotes omitted.)
Although the Second Circuit in NBC made no mention of Smit’s 1965 Columbia Law Review article, it did note this quotation (FN 6) in rejecting its import and saying, “that Professor Smit’s recent article does not purport to rely upon any special knowledge concerning legislative intent, and we find its reasoning unpersuasive.” These views were also expressly rejected by the Fifth Circuit in Biedermann.
Since 2004, a number of district courts, including a few in the Second Circuit, have held that Intel, with its reference to the Smit article and the famous footnote, tipped the balance in favor of the conclusion that private international arbitral tribunals were indeed “tribunals” within the Section 1782 definition of “Foreign and International Tribunals.” See, e.g., In re Roz Trading Ltd., 469 F.Supp.2d 1221 (N.D. Ga. 2006); In re Hallmark Capital Corp., 534 F.Supp.2d 951 (D. Minn. 2007); Ukrnafta v. Carpatsky Petroleum Corp., 2009 WL 2877156 (D. Conn.); and In re Children’s Investment Fund Foundation (UK), 363 F.Supp.3d 361 S.D.N.Y. 2019) (cases allowing application of §1782 for private international arbitrations).
A majority of district courts addressing the issue, however, have followed NBC and Biedermann. See, e.g., La Comision Ejecutiva Hidroelectrica Del Rio Lempa v. El Paso Corp., 617 F.Supp.2d 481 (S.D.Tex. 2008); In re Oper-adora DB Mexico, S.A. De C.V., 2009 WL 2423138 (M.D. Fla.); In re Norfolk Southern Corp., 626 F.Supp.2d 882 (N.D. Ill. 2009); In re Dubey, 949 F. Supp.2d 990 (C.D.Cal. 2013); and In re Grupo Unidos Por Canal S.A., 2015 WL 1810135 (D.Colo.) (cases not allowing application of §1782 for private international arbitrations).
But none of these cases led to any new decisions in the federal circuit courts, leaving NBC and Biedermann as the only appellate cases in which an opinion was issued until the Sixth Circuit’s September 2019 ALJ decision.
The Eleventh Circuit had addressed the issue in In re Consorcio Ecuatoriano de Comunicaciones S.A., 747 F.3d 1262 (11th Cir. 2014), vacating 685 F.3d 987 (11th Cir. 2012), ini-tially finding in 2012 that private international arbitral tribunal were “tribunals” within the meaning of that term in Section 1782. But two years later, the appellate court sua sponte withdrew that opinion and issued a replacement decision that avoided the issue, leaving NBC and Biedermann as the only Circuit Court of Appeals decisions on the issue and eliminating the circuit split created by its original decision.
Will the Supreme Court now take up the issue and grant certiorari in an appeal from the Fourth Circuit’s Servotronics decision?
The Court’s granting or denying certiorari will likely depend on the outcome of two of the four cases now pending in the federal circuit courts. Both the Second Circuit in the Guo case and the Seventh Circuit in Servotronics have heard arguments—Guo on Feb. 28, and Servotronics on Sept. 19 (interestingly the same day as the Sixth Circuit issued its ALJ decision), and could issue their decisions any day.
If the Guo panel either overrules the 1999 NBC case on the basis of the Supreme Court’s intervening 2004 Intel case or, alternatively, the panel finds that the NBC case was not impliedly overruled by Intel but nevertheless expresses its opinion that NBC was wrongly decided and recommends en banc consideration, such an opinion would suggest that split between the circuits might well be resolved without Supreme Court intervention. On the other hand, if the Guo panel simply affirms on the basis of NBC, especially if unanimous, the Supreme Court will be more likely to grant certiorari.
(A Second Circuit panel is generally bound by decisions of prior panels until such time as they are overruled either by an en banc panel of the full Second Circuit court, or by the Supreme Court. But where there has been an intervening Supreme Court decision that casts doubt on the nominally controlling precedent, a panel may overrule a panel’s prior decision. See Lotes Co. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 405 (2d Cir. 2014) (quoting In re Zarnel, 619 F.3d 156, 168 (2d Cir. 2010)); see also Union of Needletrades, Indus. & Textile Employees, AFL-CIO, CLC v. U.S. I.N.S., 336 F.3d 200, 210 (2d Cir. 2003). This is true even where the Supreme Court did not explicitly state that a prior opinion was overruled, if the reasoning of the intervening Supreme Court decision undermines the court’s holding. See Lotes Co., 753 F.3d at 405-06 (holding that the prior decision “ha[d] been thoroughly under-mined by” the Supreme Court’s reasoning in later case, such that the appellate court’s earlier decision was “no longer good law”).)
THE SEVENTH’S CLONE
The other case having special significance is Servotronics v. Rolls-Royce, pending before the Seventh Circuit. It is a clone of the Fourth Circuit’s Servotronics Inc. v. Boeing Co. case because two parallel Section 1782 applications were filed—one at Boeing’s Chicago headquarters, which is in the Seventh Circuit, and the other at Boeing’s Charleston, S.C., facility, where the claim being arbitrated arose and is in the Fourth Circuit. The district courts in both cases had denied Servotronics’ Section 1782 applications, following NBC and Biedermann. A Seventh Circuit decision holding that the English private international arbitration tribunals are not “tribunals” within the scope of Section 1782 would not only add to the current circuit split, but would also result in a direct circuit split in what is essentially the same case. Such a decision by the Seventh Circuit would certainly increase the likelihood that the Supreme Court would take up the issues because it would highlight the circuit split. Like with the Guo case, if the Seventh Circuit follows its sister circuit and allows the discovery, it will be less likely that the Supreme Court will find it necessary to resolve the question, particularly if the Guo panel overrules NBC or seriously questions its correctness.
Is U.S. judicial assistance good for international commercial arbitration?
After 21 years, the six cases recently decided by or currently pending before federal circuit courts show increasing interest for the potential use of Section 1782 for gathering evidence for use in private international arbitrations.
In fact, the Sixth Circuit’s ALJ decision and the prospect of Supreme Court review of the Fourth Circuit’s Servotronics case have also kindled heightened interest in the continuing debate among those in the international arbitration community about whether Section 1782 should allow U.S. District Courts to provide judicial assistance for international commercial arbitration.
Given the fact that Justice Ginsberg both was the Intel decision author and was evidently personally working with Prof. Smit at the time the 1964 amendments were drafted could well increase the likelihood that the Supreme Court will grant certiorari.
Aside from the question of interpreting Congress’s intent when it enacted the current form of Section 1782, there are important policy issues on whether the United States should open its courts to provide judicial assistance through ordinary U.S. discovery procedures for private international arbitral tribunals. If allowed, the U.S. courts could compel oral depositions and broad discovery of documents and electronically stored information in the hands of third parties, including such entities as banks, suppliers and parent companies.
By its adoption of Section 1782, Congress granted U.S. District Court judges broad discretionary authority to assist foreign courts and other international adjudicatory bodies, and the parties themselves appearing before them, to obtain evidence for use before those courts and tribunals. In many cases, material evidence obtained under Section 1782, especially evidence in the hands of non-parties, would be completely unavailable in those cases but for the ability of a U.S. court to compel its production.
It is important to recognize that for many in the international arbitration community, however, the costs and delays resulting from collateral discovery proceedings in the United States undermine, not enhance, the institution of international commercial arbitration and interests of parties that chose arbitration for resolution of their disputes. This is true whether one comes from the United States or a civil law country.
Moreover, some have found irony from the disparity between the broad discovery procedures potentially available under Section 1782 for international arbitrations and the lack of discovery procedures available under Federal Arbitration Act Chapter 1. 28 U.S.C. §1 et seq. It is argued that if arbitration is truly to be a speedier and less-expensive dispute resolution process, pre-hearing discovery must be vested entirely with the arbitral tribunal and not empower U.S. courts to usurp that role.
This point is further bolstered if Section 1782 discovery is not limited to evidence physically located in the United States but potentially allows discovery of evidence throughout the world. (The Second Circuit last year held in In re del Valle Ruiz, 939 F.3d 520, 531-33 (2nd Cir. 2019), that discovery under Section 1782 is not limited to evidence physically located in the United States, but may include any evidence wherever located that is within the “possession, custody, or control” of the party from which discovery is ordered, including evidence from wholly-owned overseas subsidiaries. See also Sergeeva v. Tripleton Int’l. Ltd., 834 F.3d 1194, 1199-1200 (11th Cir. 2016).)
While these policy issues are not directly relevant to the proper interpretation of the phrase “foreign and international tribunals” and what Congress intended by its use of that phrase, they will most certainly be argued should one or more of the cases reach the Supreme Court.
Whether or not the Supreme Court grants certiorari in the Servotronics case, there will be no certainty for some time. Moreover, the Supreme Court could well find that Section 1782 may be used in cases before a private international arbitration tribunal.
Consequently, as should be done when-ever consideration is given to drafting dispute resolution clauses for international business contracts, parties should seek provisions that favor their interests for the types of disputes most likely to arise from a breakdown of the relationship.
In some cases, the likely dispute may benefit from Section 1782 discovery in the United States, and, in others, it may not.
From a more neutral perspective, parties may be well-advised to consider including specific language regarding vesting full control for discovery and disclosure with the arbitral tribunal, and proscribing Section 1782 proceedings without express permission from the tribunal. Similarly, arbitrators and arbitration administrators should consider including provisions regarding Section 1782 in either their initial procedural orders or their arbitration rules, or both.