International Arbitration Update: Supreme Court Asked To Resolve Circuit Split Over Discovery In Aid Of Private Commercial Arbitration Seated Outside The United States - Arbitration & Dispute Resolution

On December 7, 2020, Servotronics, Inc. filed a petition for writ of certiorari asking the United States Supreme Court to decide whether parties may seek discovery in the United States for use in commercial arbitration proceedings seated outside the United States under 28 U.S.C. § 1782 ("Section 1782"), a vigorously debated question that has increasingly divided lower courts.

Under Section 1782, a petitioner may obtain evidence through U.S. federal district courts for use in a proceeding before a "foreign or international tribunal." Importantly, Section 1782 does not define what qualifies as a "foreign or international tribunal." Federal courts are increasingly divided on whether the definition includes private commercial arbitral tribunals.

A recent decision handed down by the U.S. Court of Appeals for the Seventh Circuit in September widened an existing circuit court split regarding whether parties may seek discovery in the United States for use in commercial arbitration proceedings seated outside the United States. In Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2020), the Seventh Circuit held that a district court may not authorize discovery under Section 1782 for use in private commercial arbitrations. The decision is especially noteworthy because, in a sister case arising from the same facts, the Fourth Circuit reached the opposite result, permitting Servotronics to seek discovery under Section 1782.

With the decision, the Seventh Circuit joined the Second and Fifth Circuits in rejecting the use of Section 1782 to obtain discovery in aid of private commercial arbitrations seated outside the United States.¹ The Fourth and Sixth Circuits, on the other hand, are of the view that Section 1782 permits such applications.² As of this writing, the Third and Ninth Circuit Courts of Appeals have cases pending on this very issue.³

With the widening circuit split on this issue, it seemed only a matter of time before the Supreme Court would be asked to weigh in to finally resolve the question of what qualifies as a "foreign or international tribunal." Servotronics' petition for writ of certiorari in the Supreme Court comes as no surprise. As discussed below, the company has found itself in an absurd situation that is ripe for Supreme Court review.

Section 1782 Discovery

Section 1782 empowers federal district courts to grant applicants the authority to issue subpoenas in the United States to obtain documents and/or testimony in aid of foreign proceedings. Specifically, an applicant pursuing Section 1782 discovery must establish that:

a) the discovery is for use in an actual or contemplated proceeding before a "foreign or international tribunal";

b) the applicant is an "interested person" in that proceeding; and

c) the person from whom the discovery is sought resides or is otherwise found in the district of the court where the application is filed.⁴

If the applicant satisfies all of these statutory requirements, a district court has the discretion to grant or deny the application after considering the following factors established by the U.S. Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc.:

whether the discovery sought is within the foreign tribunal's jurisdictional reach and, thus, accessible without resort to Section 1782;

the nature of the foreign tribunal, the character of the proceedings abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal court judicial assistance;

whether the applicant's request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States; and

whether the request is unduly intrusive or burdensome.⁵

The relevant issue for parties to an international arbitration proceeding seeking U.S. discovery is whether a private commercial arbitration outside the United States qualifies as a "foreign or international tribunal" within the meaning of Section 1782.⁶ The statute's failure to define those terms and disagreement regarding the correct interpretation is the source of the current 3-2 circuit split.

Servotronics, Inc. and the Circuit Split

On March 30, 2020, in Servotronics, Inc. v. Boeing Co., the Fourth Circuit cited the Sixth Circuit's first federal appellate decision to permit Section 1782 discovery in aid of a foreign-seated private commercial arbitration⁷ with approval and reached the same result.⁸ The Fourth Circuit considered whether a party to a private arbitration in the United Kingdom could obtain testimony from residents of South Carolina for use in the arbitration.⁹ The Fourth Circuit also adopted the Sixth Circuit's holding that district courts remain empowered with wide discretion to administer and manage the discovery process so as to avoid unduly burdening the target of discovery.¹⁰

Despite its success in the Fourth Circuit, Servotronics faced a completely opposite outcome in the Seventh Circuit. In a sister case arising from the same facts as Servotronics, Inc. v. Boeing Co., the Seventh Circuit blocked Servotronics from obtaining testimony from residents of Illinois under Section 1782 for use in a private arbitration in the United Kingdom.¹¹ With this decision, the Seventh Circuit joined the Second and Fifth Circuits in concluding that Section 1782 does not authorize discovery for use in private foreign arbitrations.¹²

Ripe for the Supreme Court's Review

The two Servotronics cases involved the same parties and the same set of facts, and yet the outcomes could not be more different. The Seventh Circuit squarely rejected the Third Circuit's finding from just six months ago. With the Fourth and Sixth Circuits on one side and the Second, Fifth, and Seventh Circuits on the other, the time may be ripe for the Supreme Court to clarify this increasingly divisive question. It remains to be seen if the Supreme Court grants certiorari. If it does, arguments would likely occur in Fall 2021, and the Supreme Court would then decide once and for all if Section 1782 allows federal district courts to order discovery to be used in foreign arbitral proceedings.

Footnotes

1 Nat'l Broad. Co., Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184, 188, 190-91 (2d Cir. 1999); Guo v. Deutsche Bank Securities, Inc., 965 F.3d 96 (2d Cir. 2020); Republic of Kazakhstan v. Biedermann Int'l, 168 F.3d 880, 882-83 (5th Cir. 1999). For more in-depth discussions of the cases, our prior client alerts are available at https://www.mofo.com/resources/insights/200309-ca-district-court-discovery-foreign-arbitration.html and https://www.mofo.com/resources/insights/200714-international-arbitration-update.html.

2 Abdul Latif Jameel Transportation Co. Ltd. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019); Servotronics, Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020). For more in-depth discussions of the cases, our prior client alerts are available at https://www.mofo.com/resources/insights/191002-international-commercial-arbitration.html and https://www.mofo.com/resources/insights/200406-international-arbitration-update.html.

3 HRC-Hainan Holding Co., LLC v. Yihan Hu, No. 19-mc-80277-TSH, 2020 U.S. Dist. LEXIS 32125, at *2 (N.D. Cal. Feb. 25, 2020), appeal filed sub nom. In re: Application of HRC-Hainan Holding Co., LLC, No. 20-15371 (9th Cir. Feb. 28, 2020); In re Storag Etzel GmbH, No. CV 19-MC-209-CFC, 2020 WL 1849714 (D. Del. Apr. 13, 2020), appeal filed sub nom. In re: Application of Storag Etzel GmbH, No. 20-01833 (3d Cir. May 7, 2020); In re EWE Gasspeicher GmbH, No. CV 19-MC-109-RGA, 2020 WL 1272612 (D. Del. Mar. 17, 2020), appeal filed sub nom. In re: Application of EWE Gasspeicher GmbH, No. 20-01830 (3d Cir. May 8, 2020).

4 28 U.S.C. § 1782(a).

<5 542 U.S. 241, 264-65 (2004) (internal quotations and citations omitted).

6 It is also possible for international parties to seat their arbitrations inside the United States. Some commentators have argued that such proceedings should be considered proceedings "in an international tribunal" for purposes of Section 1782. See, e.g., Hans Smit, American Assistance to Litigation in Foreign and International Tribunals: Section 1782 of Title 28 of the U.S.C. Revisited, 25 Syracuse J. Int'l L. & Com. 1, 5 (1998) ("a tribunal is international in the sense of Section 1782 when any of the parties before it, or any of the arbitrators, is not a citizen or resident of the United States."). At least one court has considered this issue but declined to decide it after holding more generally that private arbitrations are not covered under Section 1782. See In re Dubey, 949 F. Supp. 2d 990 (C.D. Cal. 2013).

7 Abdul Latif Jameel Transp. Co. Ltd. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019). For a more in-depth discussion of the case, our prior client alert is available at https://www.mofo.com/resources/insights/191002-international-commercial-arbitration.html.

8 954 F.3d 209 (4th Cir. 2020). For a more in-depth discussion of the case, our prior client alert is available at https://www.mofo.com/resources/insights/200406-international-arbitration-update.html.

9 Id. at 210.

10 Id. at 215.

11 Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689, 690-91 (7^th Cir. 2020).

12 Id. at 696. For a more in-depth discussion of the case, our prior client alert is available at https://www.mofo.com/resources/insights/200926-seventh-circuit-discovery-arbitration.html.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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