Domestic Discovery for Foreign Arbitrations? Location, Location, Location!

September 2, 2020 Alerts and Newsletters

International transactions can generate international disputes. A party to a lawsuit in one country may believe that a non-party in another country has information that could be put to good use in the case. Someone being sued in Italy, let’s say, may have engaged the services of an investment banker in New York whose records the other litigant thinks could be used to its advantage in the Italian lawsuit. Can the litigant who wants that information get ahold of it and use it in that case even though the investment banker has no office in Italy and isn’t a party to the lawsuit? A federal statute, 28 U.S.C. § 1782, provides a way to accomplish that. The statute says, in pertinent part:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made … upon the application of any interested person ….

This statute would allow the party in our hypothetical who wants the information to file an application in federal court in New York seeking to have the court order the investment banker to turn over relevant documents and produce a witness for a deposition. All of that evidence could then be presented to the Italian court.

But not all disputes get fought out in court. Many contracts have dispute resolution clauses that require arbitration. What if the foreign proceeding is an arbitration, not a lawsuit in a court? Is a foreign private arbitration panel “a foreign or international tribunal” within the meaning of § 1782? The answer – at least for now – depends on which federal judicial circuit the person from whom the information is sought “resides or is found” in.

Not surprisingly given New York’s role as a hub of international commerce, a large number of applications under § 1782 are filed in the United States District Court for the Southern District of New York, and some of them eventually find their way to the United States Court of Appeals for the Second Circuit. In National Broadcasting Co., Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184 (2d Cir., 1999) (“NBC”), the Second Circuit held that a private arbitration conducted in Mexico under the auspices of the International Chamber of Commerce is not a “proceeding in a foreign or international tribunal” within the meaning of § 1782. The arbitration pitted NBC against a Mexican television broadcasting company named Azteca S.A. de C.V. that had engaged Bear Stearns and other New York-based firms as investment bankers and financial advisors. Whether Azteca, during the pertinent time period, had planned to conduct an in initial public offering or misstated the value of its shares were relevant questions for the arbitration. Believing that the New York firms had information that would shed light on those issues, NBC filed an application in the Southern District seeking leave to serve discovery subpoenas on those firms under § 1782.

The District Court rejected NBC’s efforts and the Second Circuit affirmed, on the ground that § 1782 isn’t applicable to foreign private arbitrations. After determining that the phrase “foreign or international tribunal” was ambiguous as to whether it included arbitration proceedings, the Court looked to the legislative history of a 1964 amendment to § 1782 that substituted “foreign or international tribunal” for the prior language, “foreign administrative tribunal or quasi-judicial agency.” The Court noted references in that legislative history to a desire on the part of Congress to encompass discovery under § 1782 for use before governmental entities such as investigative or administrative courts and intergovernmental tribunals, but found no mention of foreign arbitral tribunals. The Court found the omission noteworthy, believing that such a reference would have been expected if Congress had intended to make the discovery process created by § 1782 available in private arbitrations, since that would have undermined the “asserted efficiency and cost-effectiveness” of the arbitral process, which does not ordinarily allow for extensive discovery from third parties. 165 F.3d at 189-90.

Less than two months after the NBC decision, the Fifth Circuit jumped on board. In Application of Republic of Kazakhstan v. Biedermann, 168 F.3d 880 (5th Cir., 1999), that court found the Second Circuit’s position persuasive, and joined it in holding that a foreign private arbitration panel is not a “foreign or international tribunal” under § 1782.

There things stood at the appellate level until the Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices, 542 U.S. 241 (2004). Advanced Metro Devices (“AMD”) had filed an antitrust complaint against Intel with the Directorate-General for Competition of the Commission of the European Communities. AMD – which did not have formal “party” status in that proceeding – petitioned a federal court in California to require Intel to provide discovery under § 1782; the district court denied the request but the Ninth Circuit reversed. The Supreme Court affirmed, holding, among other things,[1] that discovery under the statute was available to AMD because it was an “interested person” before a foreign tribunal even though, as a complainant, it was not formally a litigant. The case didn’t directly present the question of whether a foreign private arbitration is a “foreign or international tribunal” for purposes of §1782, but the Court relied on the fact that the statute’s reach was extended in 1964 to include “administrative and quasi-judicial” – i.e., non-judicial – proceedings before decision-making bodies. 542 U.S. at 249, 258.

After Intel, the Fourth and Sixth Circuit Courts of Appeals held that a foreign private arbitration panel is a “foreign or international tribunal” under § 1782. Servotronics, Inc. v. Boeing Company, 954 F.3d 209 (4th Cir., 2020); In re Application to Obtain Discovery, 939 F.3d 710 (6th Cir., 2019). Both courts relied on the reasoning employed by the Supreme Court in Intel to support its conclusion that the Commission of the European Communities is a “foreign or international tribunal,” as well as on their own textual analyses. Both courts also discussed and rejected the contrary decisions by the Second Circuit in NBC and the Fifth Circuit in Application of Republic of Kazakhstan. Servotronics, 954 F.3d at 212-214; In re Application, 939 F. 3d at 726-730.

None of this made any difference to the Second and Fifth Circuits. The Second Circuit took up the issue again in In re Guo, 965 F.3d 96 (2d Cir., 2020), and concluded that nothing in Intel required it to overrule its decision in NBC. And the Fifth Circuit stood by Application of Republic of Kazakhstan in El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 F. App’x 31 (5th Cir., 2009).

At this writing, then, the lineup of circuits is the Second and Fifth, for the proposition that foreign private arbitrations are not “foreign or international tribunals,” against the Fourth and Sixth, for the proposition that they are. The circuit split is ripe for resolution by the Supreme Court when and if a certiorari petition is filed. No guess is offered here as to how the issue will ultimately be resolved. There are points to be made on both sides. For example, as mentioned above, in NBC the Second Circuit noted the incongruity of allowing extensive discovery in aid of foreign arbitrations that exceeds the limited discovery available in this country for arbitration, which is touted as being quicker and less expensive than litigation. 165 F.3d at 190. A good point! But it was parried by the Sixth Circuit in In re Application; the court noted that the limited scope of discovery ordinarily available in arbitration could be considered by district judges using their discretion in ruling on § 1782 applications to allow only limited discovery, consistent with the arbitral process. 939 F. 3d at 729-30. Another good point! Hard to pick a winner here.

The flip side of the question of whether United States courts can entertain applications under § 1782 for discovery in aid of foreign arbitration is whether United States arbitrators can entertain § 1782 applications for discovery in aid of foreign litigation. It seems like an odd scenario, but that very issue was recently presented in In re Motransa, S.A., 2020 WL 4251145 (S.D. Fl., 2020). Motransa intended to sue a distributor of Navistar, Inc., in Ecuador. It filed an application under § 1782 in the Southern District of Florida seeking discovery from Navistar for use in that litigation. Motransa and Navistar were parties to a contract that was relevant to Motransa’s dispute with the distributor. The contract contained an arbitration clause. Navistar filed a motion to compel arbitration, which a Magistrate Judge granted. In re Motransa, S.A. (2020 WL 4251147). The District Judge approved the Magistrate Judge’s order, staying the § 1782 proceeding and compelling arbitration of the application. Whether it is proper for an arbitrator to exercise powers specifically granted by statute to “[t]he district court of the district in which a person resides or is found” is an interesting question.

Stay tuned.

[1] The “other things” are (a) that the statute does not impose a “foreign discoverability” requirement (i.e., documents sought under § 1782 can be obtained whether or not they would have been discoverable if located within the tribunal’s jurisdiction); and (b) it is sufficient for a foreign proceeding to be “within reasonable contemplation” for § 1782 to come into play; there is no requirement that the proceeding be either pending or “imminent.”