International Arbitration Update: Widening Circuit Split, Seventh Circuit Joins Second and Fifth Circuits in Refusing to Allow Discovery in Aid of Private Commercial Arbitration Seated Outside the United States

A recent decision by the U.S. Court of Appeals for the Seventh Circuit widens 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.  Under 28 U.S.C. § 1782 (“Section 1782”), a petitioner may obtain evidence through U.S. federal district courts for use in a proceeding before a “foreign or international tribunal.”  In Servotronics, Inc. v. Rolls-Royce PLC, No. 19-1847, 2020 WL 5640466 (7th Cir. Sept. 22, 2020), the Seventh Circuit held that a district court may not pursue discovery under Section 1782 for use in private commercial arbitrations.

Section 1782 notably does not define what qualifies as a “foreign or international tribunal.”  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.

As it now stands, the Second, Fifth, and Seventh Circuit Courts of Appeal reject the use of Section 1782 to obtain discovery in aid of private commercial arbitrations seated outside the United States, while both the Fourth and Sixth Circuit Courts of Appeal permit such applications.  The Third 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 on the issue, it seems likely that the Supreme Court will soon be asked to resolve the question of 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:

• the discovery is for use in an actual or contemplated proceeding before a “foreign or international tribunal”;
• the applicant is an “interested person” in that proceeding; and
• 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 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 3–2 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 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 (b) 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 and statutory interpretation, the Fifth Circuit remarked, “[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,” and “[t]here is no contemporaneous evidence that Congress contemplated extending [it] to the then-novel arena of international commercial arbitration.”[5]

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,[6] but no federal court of appeals conclusively decided it.[7]

Then, on September 19, 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.[8]  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.”[9]  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.”[10]  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).”[11]

On March 30, 2020, in Servotronics, Inc. v. Boeing Co.,[12] 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.[13]  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.[14]

The Seventh Circuit Follows the Second and Fifth Circuits and Rejects Section 1782 Discovery in Aid of Foreign-Seated Private Commercial Arbitration

On September 22, 2020, in Servotronics, Inc. v. Rolls-Royce PLC, the Seventh Circuit joined the Second and Fifth Circuits in concluding that Section 1782 does not extend to private international commercial arbitration.[15]  The case arose from the same facts as Servotronics, Inc. v. Boeing Co., but, unlike in the latter case from South Carolina, a district court in Illinois blocked Servotronics from obtaining testimony from residents of Illinois for use in a private arbitration in the United Kingdom.[16]

Affirming the district court’s denial of Servotronics’ Section 1782 application, the Seventh Circuit noted that the statutory context of the word “tribunal” renders “the more expansive reading of the term—the one that includes private arbitrations—[…] far less plausible.”[17]  First, the Commission on International Rules of Judicial Procedure, which was mandated by Congress to propose the text of Section 1782, was not charged “to study and recommend improvements in judicial assistance to private foreign arbitration.”[18]  Second, the phrase “foreign or international tribunal” as used in other parts of the same statute—§§ 1696 and 1781, both addressing matters of comity between governments—suggests “tribunal” means “state-sponsored tribunals and does not include private arbitration panels.”[19]  Third, if the word “tribunal,” which appears three times in Section 1782, is to have a consistent meaning, “a ‘foreign tribunal’ in this context means a governmental, administrative, or quasi-governmental tribunal operating pursuant to the foreign country’s ‘practice and procedure.’”[20]

In addition, relying on the well-established principle that, “[w]hen a statute is susceptible of two interpretations,” courts should avoid an interpretation that “creates a conflict with another statute,” the Seventh Circuit determined that the narrower interpretation of the word “tribunal” avoids a conflict with the Federal Arbitration Act (“FAA”).[21]  First, “litigants in foreign arbitrations would have access to much more expansive discovery than litigants in domestic arbitrations” because Section 1782 permits both foreign tribunals and litigants to obtain discovery, whereas the FAA only permits the arbitration panel to do the same.[22]  Second, the application of the FAA to certain foreign arbitrations “under implementing legislation for the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Inter-American Convention on International Commercial Arbitration” creates a direct conflict for this subset of foreign arbitrations.[23]

Lastly, the Seventh Circuit held that the Supreme Court’s holding in Intel did not change the analysis.[24]

What Lies Ahead?

With the Seventh Circuit breaking the 2–2 tie among the circuit courts, the circuit split will likely grow wider.  As of this writing, at least two other circuit courts may soon take up the question.  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.[25]  That case is on appeal with the Ninth Circuit, which heard oral argument on September 14, 2020.[26]  And, two appeals pending before the Third Circuit also present this question.[27]

Regardless of how the Third 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.  However, the two Servotronics cases involving the same parties and the same set of facts ended up with completely opposite outcomes—the Fourth Circuit in favor of discovery and the Seventh Circuit against it.  This striking difference in outcome illustrates the importance of filing in the right district.  Accordingly, 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).  On July 8, 2020, in Guo v. Deutsche Bank Securities, Inc., 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 United States and reached the same result.  965 F.3d 96 (2d Cir. 2020).  For a more in-depth discussion of the case, our prior client alert is available at https://www.mofo.com/resources/insights/200714-international-arbitration-update.html.

[5] 168 F.3d 880, 882–83 (5th Cir. 1999).

[6] 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).

[7] 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).

[8] 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.

[9] Id. at 722.

[10] Id. at 723–26.

[11] Id. at 729–30.

[12] 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.

[13] Id. at 210.

[14] Id. at 215.

[15] No. 19-1847, 2020 WL 5640466 (7th Cir. Sept. 22, 2020).

[16] Id. at *2–3.

[17] Id. at *9–10.

[18] Id. at *10–11.

[19] Id. at *11–12 (citing Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 86 (2006)).

[20] Id. at *12.

[21] Id. at *12–13 (citing Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537, 544 (7th Cir. 2003)).

[22] Id. at *13.

[23] Id. at *13 (citing 9 U.S.C. §§ 201–208, 301–307; NBC, 165 F.3d at 187).

[24] Id. at *14–15 (quoting Intel, 542 U.S. at 258). 

[25] 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.

[26] A video recording of the oral argument, which took place remotely, is available at https://www.ca9.uscourts.gov/media/view_video.php?pk_vid=0000017954.

[27] 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).