International Arbitration Update: Crystalizing Circuit Split, Second Circuit Refuses to Allow U.S. Discovery in Aid of Foreign-Seated Private Commercial Arbitration

Parties to arbitrations seated outside the United States occasionally request that U.S. federal courts order discovery under 28 U.S.C. § 1782 (“Section 1782”), which allows discovery in the United States for use in a proceeding before a “foreign or international tribunal.” The statute does not define what qualifies as a “foreign or international tribunal,” and early appellate decisions were reluctant to stretch the definition to include private commercial arbitration. But views among district courts and, recently, circuit courts are increasingly divided on this issue.

In In re Guo, No. 19-781, 2020 WL 3816098 (2d Cir. July 8, 2020), as amended (July 9, 2020), the United States Court of Appeals for the Second Circuit recently made clear that, at least for now, district courts in the Second Circuit (which include federal district courts located in New York) will no longer entertain applications for discovery in aid of foreign-seated private commercial arbitration.

As it now stands, both the Second and Fifth Circuit Courts of Appeal reject the use of Section 1782 to obtain discovery in aid of foreign-seated private commercial arbitration, while both the Fourth and Sixth Circuit Courts of Appeal permit such applications. The Third, Seventh, and Ninth Circuit Courts of Appeal currently have pending cases in which this question is squarely before them.

In light of the widening circuit split, the Supreme Court may be called upon to answer once and for all what qualifies as a “foreign or international tribunal.”

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:

1. the discovery is “for use in a proceeding in a foreign or international tribunal”;
2. the applicant is an “interested person” in that proceeding; and
3. the person from whom the discovery is sought resides or is otherwise found in the district of the court where the application is filed.[1]

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.[2]

The relevant issue for parties to an international arbitration proceeding seeking U.S. discovery is typically whether a private commercial arbitration outside the United States qualifies as a “foreign or international tribunal” within the meaning of Section 1782.[3] The statute’s failure to define those terms and disagreement regarding the correct interpretation is the source of the current 2–2 circuit split.

The Second and Fifth Circuits Reject Section 1782 Discovery in Aid of Foreign-Seated Private Commercial Arbitration

The Second and Fifth Circuits considered this question in 1999—before the Supreme Court’s 2004 decision in Intel—and ruled that Section 1782 does not apply to privately constituted tribunals in international commercial arbitrations.

In reaching its decision in National Broadcasting Co., Inc. v. Bear Stearns & Co., Inc. (“NBC”), the Second Circuit reasoned that: (a) the ordinary meaning of the phrase “foreign or international tribunal” is ambiguous; (b) the legislative history of Section 1782 reveals that Congress “intended to cover governmental or intergovernmental arbitral tribunals and conventional courts and other state‑sponsored adjudicatory bodies”; and (c) allowing discovery under Section 1782 for use in private commercial arbitration “would be at odds with the efficiency and cost-effectiveness of arbitration.”[4]

Similarly in Republic of Kazakhstan v. Biedermann International, the Fifth Circuit ruled that private commercial arbitration was outside the scope of Section 1782 discovery. Echoing the Second Circuit’s policy considerations, the Fifth Circuit noted, “[e]mpowering arbitrators, or worse, the parties, in private international disputes to seek ancillary discovery through the federal courts does not benefit the arbitration process. Arbitration is intended as a speedy, economical, and effective means of dispute resolution.”[5] Further, the Fifth Circuit agreed with the Second Circuit that Congress drafted Section 1782 to facilitate “discovery for international government-sanctioned tribunals” but “[t]here is no contemporaneous evidence that Congress contemplated extending [it] to the then-novel arena of international commercial arbitration.”[6]

The Sixth and Fourth Circuits Reject the Longstanding View and Permit Section 1782 Discovery in Aid of Private Commercial Arbitrations Seated Outside the United States

In the two decades following the Second and Fifth Circuit decisions, subsequent federal district court decisions in jurisdictions across the United States—including district courts in New York that took the position that NBC was no longer good law post-Intel—have split on the question,[7] but no federal court of appeals conclusively decided it.[8]

Then, in September 2019, in Abdul Latif Jameel Transportation Co. Ltd. v. FedEx Corp., the Sixth Circuit became the first circuit court to permit Section 1782 discovery in aid of a foreign-seated private commercial arbitration.[9] The Sixth Circuit held that a Dubai-seated tribunal constituted under the DIFC-LCIA Arbitration Rules qualified as a “tribunal” under Section 1782. After examining the dictionary meaning of “tribunal” and the term’s legal usage, the Sixth Circuit concluded, “American lawyers and judges have long understood, and still use, the word ‘tribunal’ to encompass privately contracted-for arbitral bodies with the power to bind the contracting parties.”[10] The Sixth Circuit also relied on the Supreme Court’s Intel decision for guidance. According to the Sixth Circuit, the Intel Court’s approval of Section 1782 discovery in a non‑judicial proceeding conducted by the Directorate-General for Competition of the European Commission supports this broad definition of “tribunal.”[11] The Sixth Circuit brushed aside the efficiency arguments advanced by the Second and Fifth Circuits, emphasizing that the statutory requirements reflect a minimum threshold and that if a discovery request is likely to become unduly burdensome, “district courts enjoy substantial discretion to shape discovery under § 1782(a).”[12]

Soon thereafter, in Servotronics, Inc. v. Boeing Co.,[13] the Fourth Circuitcited the Sixth Circuit’s decision with approval and reached the same result. 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.[14] 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.[15]

The Second Circuit Again Rejects Section 1782 Discovery in Aid of Foreign-Seated Private Commercial Arbitration

On July 8, 2020, in In re Guo, the Second Circuit revisited for the first time since its 1999 decision in NBC the issue of whether Section 1782 permits discovery in aid of private commercial arbitration seated outside the US, and reached the same result.[16] The case involved a dispute before the China International Economic and Trade Arbitration Commission (“CIETAC”). Seeking discovery in aid of that arbitration, Guo initiated Section 1782 proceedings in the Southern District of New York.[17] On February 25, 2019, the district court denied Guo’s application on the basis that (a) it was bound by the Second Circuit’s 1999 holding in NBC that Section 1782(a) does not apply to private arbitration and (b) CIETAC is a private arbitral body.[18]

Guo appealed, contending that the Supreme Court’s decision in Intel effectively overruled or otherwise undermined the Second Circuit’s decision in NBC.[19] Disagreeing with Guo, the Second Circuit noted that “the question whether foreign private arbitral bodies qualify as tribunals under § 1782(a) was not before the Intel Court, which considered only whether the Directorate General-Competition, a public entity, qualified as such a tribunal.”[20] According to the Second Circuit, the only language in Intel that is even arguably in tension with NBC’s determination is in a footnote quoting an article by Professor Hans Smit: “[t]he term ‘tribunal’ . . . includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.”[21] But, noting Professor Smit’s own statement that “an international tribunal owes both its existence and its powers to an international agreement,” the Second Circuit concluded that Intel’s indirect reference to “arbitral tribunals” can be read consistently with NBC as referring solely to state-sponsored arbitral bodies.[22]

Guo next argued that Intel’s discussion of Section 1782’s legislative history undermines NBC.[23] The Second Circuit observed that just like the Intel Court, which concluded that “the statute’s introduction of the word ‘tribunal’ was intended to expand the types of proceedings in which assistance would be available,” the NBC court “explicitly acknowledged that Congress drafted the provision in question with an intent to expand the scope of coverage.”[24] The Second Circuit went on to emphasize that the NBC court’s determination that “this expanding function did not extend so far as to incorporate private arbitration—a question that the Intel Court had no occasion to consider—does not render NBC’s treatment of legislative history incompatible with that of Intel.”[25]

Having determined that NBC remains good law, the Second Circuit agreed with the district court that CIETAC arbitration is a private international commercial arbitration, which falls outside the scope of Section 1782.[26] The Second Circuit reached this conclusion after considering (a) the degree of state affiliation, (b) the degree to which a state possesses the authority to intervene, (c) the nature of jurisdiction possessed by the panel, and (d) the ability of the parties to select their own arbitrators.[27]

Looking Ahead to the Supreme Court and Beyond

Importantly, the Second Circuit’s inquiry in In re Guo was limited to whether Intel had overturned NBC even though Intel did not directly address the issue in question. Indeed, the Second Circuit noted that its hands were tied because the three-judge panel decision in NBC remains binding: “It is a longstanding rule of our Circuit that a three-judge panel is bound by a prior panel’s decision until it is overruled either by this Court sitting en banc or by the Supreme Court.”[28] It remains to be seen whether the Second Circuit will hear the case en banc.

In the meantime, with the stage set for the Supreme Court to weigh in on the meaning of “foreign or international tribunal,” the circuit split will likely grow wider. As of this writing, at least three other circuit courts may soon take up the question. In a sister case arising from the same facts as Servotronics, Inc. v. Boeing Co., after a district court denied Section 1782 discovery in Illinois, Servotronics is appealing to the Seventh Circuit.[29] And, a federal district court in California, which had uniformly followed the reasoning of the Second and Fifth Circuits in rejecting requests for Section 1782 discovery in aid of private commercial arbitration, recently rejected prior California district court decisions and allowed discovery in aid of a private commercial arbitration pending in China.[30] That case is on appeal with the Ninth Circuit. Finally, two appeals pending before the Third Circuit also present this question.[31]

Regardless of how the Third, Seventh, and Ninth Circuits come out on the issue, parties who are or who may become involved in arbitration seated outside the United States should be aware that seeking discovery under Section 1782 is an available option in more jurisdictions within the United States than ever before. But, until such time as a uniform rule applies across all federal circuits, parties seeking discovery in aid of foreign-seated private arbitration will need to be strategic in selecting a district court with jurisdiction to pursue such discovery.

[1] 28 U.S.C. § 1782(a). 

[2] 542 U.S. 241, 264-65 (2004) (internal quotations and citations omitted).

[3] 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).

[4] 165 F.3d 184, 188, 190-91 (2d Cir. 1999).

[5] 168 F.3d 880, 883 (5th Cir. 1999).

[6] Id. at 882-83. 

[7] See In re EWE Gasspeicher GmbH, No. CV 19-MC-109-RGA, 2020 WL 1272612, at *2, n. 2 (D. Del. Mar. 17, 2020) (compiling cases on both sides).

[8] But see In re Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 685 F.3d 987, 993–98 (11th Cir. 2012) (finding as a matter of first impression in circuit that arbitral panel was a “tribunal” under Section 1782), vacated and superseded by Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 747 F.3d 1262, 1270 n.4 (11th Cir. 2014) (“leav[ing] the resolution of the matter for another day”). See also Comision Ejecutiva Hidroelectrica del Rio Lempa v. Nejapa Power Co. LLC, 341 F. App’x 821 (3d Cir. 2009) (because arbitration proceeding referenced in Section 1782 application was “nearly over, with the parties simply waiting for a decision from the Arbitral Tribunal,” declining to address issue of whether an arbitral panel was a “tribunal” under Section 1782, vacating district court decision granting Section 1782 application, and remanding to the district court with instructions to dismiss Section 1782 application as moot).

[9] 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.

[10] Id. at 722.

[11] Id. at 723-26.

[12] Id. at 729-30.

[13] 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.

[14] Id. at 210.

[15] Id. at 215.

[16] No. 19-781, 2020 WL 3864855 (2d Cir. July 8, 2020).

[17] Id. at *2.

[18] Id.

[19] Id. at *5.

[20] Id.

[21] Id. (citing 542 U.S. at 258).

[22] Id. at *5 (citing Hans Smit, Assistance Rendered by the United States in Proceedings Before International Tribunals, 62 Colum. L. Rev. 1264, 1267 (1962); NBC, 165 F.3d at 189).

[23] Id. at *6.

[24] Id. (citing 542 U.S. at 248-49).

[25] Id.

[26] Id.

[27] Id. at *7-8.

[28] Id. at *5 (quoting Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 378 (2d Cir. 2016)).

[29] In re: Servotronics, Inc., No. 1:18-cv-07187 (N.D. Ill. Apr. 22, 2019), appeal filed sub nom. Servotronics, Inc. v. Rolls-Royce PLC, No. 19-1847 (7th Cir.).

[30] 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). For a more in-depth discussion of the case, our prior client alert is available at https://www.mofo.com/resources/insights/200309-ca-district-court-discovery-foreign-arbitration.html.

[31] 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) and 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).