By Joseph Famulari
As the new Supreme Court year has commenced and confirmation hearings for a new justice dominate the legal news this month, federal circuit courts have continued to discuss an arbitration issue getting closer to a Court hearing: Does 28 U.S.C. §1782(a), authorizing “any interested person” in a proceeding before a “foreign or international tribunal” to ask for and receive discovery from a person in the United States, cover private international arbitration tribunals?
There is a lot of activity in this area, including a recently issued Seventh U.S. Circuit Court of Appeals decision; completed arguments in the Ninth Circuit now awaiting decision, and a long-pending Third Circuit appeal. These are latest additions to the saga concerning an issue once thought to be settled upon more than two decades ago in National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2nd Cir. 1999) and reaffirmed in the Fifth Circuit Republic of Kazakhstan v. Biedermann Int’ l, 168 F.3d 880 (5th Cir. 1999).
These cases excluded private arbitration tribunals from §1782 discovery, indicating that a private international arbitration tribunal was not a “foreign or international tribunal” within the statutory framework.
The current state of the §1782 law has produced a federal circuit court split. The Sixth Circuit and Fourth Circuit have issued opposing decisions finding that discovery for foreign arbitral tribunals was permitted in, respectively, In re Application to Obtain Discovery for Use in Foreign Proceedings (Abdul Latif Jameel Transp. Co. v. FedEx Corp.), 939 F.3d 710 (6th Cir. 2019) (available at https://bit.ly/2AFPIB9), and Servotronics Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020) (available at https://bit.ly/3h7s0P8), using the only §1782 case considered by the Supreme Court, Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) as guidance.
While Intel did not expressly state whether a private international arbitration tribunal would fall under §1782, the late Justice Ruth Bader Ginsberg cited a 1965 Columbia Law Review article written by her former Columbia Law School colleague, Prof. Hans Smit, who participated in the creation of the 1964 update to the law.
The article noted an expanded view of the term “tribunal” in the context of the U.S. Code: “the term ‘tribunal’ includes investigating magistrates, administrative and arbitral tribunals,and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.” Id. at 248-49 (citing Hans Smit, International Litigation Under the United States Code, 65 Colum. L. Rev. 1015, 1026, n.71 (1965)). For a full discussion, see John B. Pinney, “Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?” 38 Alternatives 103 (July/August 2020) (available at https://bit.ly/38PDOSk).
More recently after Abdul Latif Jameel and Servotronics, in July, Circuit Judge Debra A. Livingston, writing for a Second Circuit panel, reaffirmed its prior decision that foreign arbitration tribunals do not fall under §1782. In re Application and Petition of Hanwei Gup for an Order to take Discovery for Use in a Foreign Proceeding Pursuant to 28 U.S.C. 1782 (Guo v. Deutsche Bank Securities Inc.), No. 19-781, 2020 WL 3816098 (2d Cir. July 8, 2020), as amended (July 9, 2020) (available at https://bit.ly/3j5dUxx); See also Yixian Sun, “Second Circuit: No U.S. Discovery for Private International Arbitration,” CPR Speaks blog (July 14) (available at https://bit.ly/2PtNSra) for more on the Second Circuit decision.
Even more recently, the Seventh Circuit provided further guidance in another Servotronics case involving the same parties as the Fourth Circuit. Chief Judge Diane S. Sykes, writing for a unanimous panel, wrote that §1782 does not authorize the district court to compel discovery for use in a private foreign arbitration. Servotronics Inc. v. Rolls Royce PLC, No. 19-1847 2020 U.S. App. (7th Cir. Sept. 22, 2020) (available at https://bit.ly/3dpNyF4).
As noted, it’s the second federal circuit court decision in the same case in six months—again, Servotronics Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020) (available at https://bit.ly/3h7s0P8)–which held that §1782’s phrase “foreign and international tribunals” included private international arbitral tribunals. Last month’s Seventh Circuit decision reached the opposite conclusion.
In the Seventh Circuit case, after a $12 million settlement between Rolls-Royce and Boeing, arising from damages due to a faulty valve, Rolls-Royce sought indemnification from Servotronics Inc., the valve manufacturer. Id.at 2. Due to an agreement between the companies, the dispute was set for arbitration in Birmingham, England, under the rules of the Chartered Institute of Arbiters.
During the proceedings, Servotronics invoked §1782 and filed an ex parte application in the Illinois Northern U.S. District Court, asking the court to issue a subpoena compelling Boeing to produce documents for use in the arbitration. Rolls-Royce and Boeing intervened to quash the initially granted subpoena; Servotronics appealed, prompting review from the court. Id.
Chief Judge Sykes laid out multiple reasons for the court’s conclusion. First, the panel assessed whether looking at the various definitions of the word “tribunal” could guide the understanding of the phrase “foreign or international tribunal” as meaning only state-sponsored tribunals, or also include private arbitration panels. Id. at 9. Due to the plausibility of both interpretations, however, the court found assessing dictionary definitions inconclusive.
Sykes then assessed the word “tribunal” within its statutory §1782 context and noted that the term’s more expansive reading “becomes far less plausible.” The court looked at the 1958 statutory charge from the Commission on International Rules of Judicial Procedure, the proposal that sparked the 1964 change in §1782. Chief Judge Sykes noted the absence of any instruction to study and recommend improvements in judicial assistance to private arbitration.
Additionally, when looking at the statutory context, the court assessed the other statutes the 1964 legislation revised besides §1782: 28 U.S.C. §1696, on service of process in foreign litigation and §1781, regarding letters rogatory. The court looked at the phrase “foreign or international tribunal” within those other statutes, which address comity matters between governments. The opinion states that in the context of those laws, the phrase “means state-sponsored tribunals and does not include private arbitration panels.” Id.at 12.
When looking at the phrase, it appears three times during §1782:
- authorizing the district court to order discovery “for use in a proceeding in a foreign or international tribunal.”
- Authorizing the court to act on a letter rogatory issued by “a foreign or international tribunal,” and
- Where the statute provides that the court’s discovery order “may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or international tribunal.” [Emphasis is the court’s.]
The court uses this context to conclude that a limited, governmental-based definition of “foreign tribunal” is likely the intended meaning.
Next, the court addressed how a narrow understanding of the word “tribunal” avoids a severe conflict with the Federal Arbitration Act. The FAA permits the arbitration panel, but not the parties, to summon witnesses before the panel to testify and produce documents and petition the district court to enforce the summons. The opinion lays out how if §1782 were construed to permit federal courts to provide discovery assistance in private foreign arbitrations, then litigants in foreign arbitrations would have access to much more expansive discovery than litigants in domestic arbitrations.
Finally, Chief Judge Sykes discussed the Intel and the Servotronics courts’ reliance on the reference to Hans Smit’s law review article. She explains that there is no indication that the phrase “arbitral tribunals” includes private tribunals, but even if there were, there is “no reason to believe” that the Supreme Court, “by quoting a law-review article in a passing parenthetical, was signaling its view that §1782(a) authorizes district courts to provide discovery assistance in private foreign arbitrations.”
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In a recent article, author John Pinney, a senior trial lawyer at Cincinnati’s Graydon law firm, noted that he believes a Seventh Circuit decision in line with the Second and Fifth Circuit courts would increase the likelihood of Supreme Court review for two reasons:
- It would create a direct circuit split between the Fourth and Seventh Circuits in the very same case; and
- It would mean that Servotronics, as the loser in the Seventh Circuit case, likely would then take that case to the Supreme Court even if the South Carolina district court in the Fourth Circuit dismissed its §1782 proceeding.
John B. Pinney, “Update: The Section 1782 Conflict Intensifies as the International Arbitration Issue Goes to the Supreme Court.” 38 Alternatives 125 (September 2020) (available at https://bit.ly/3k0eNIR).
Servotronics is considering a rehearing or appeal to the U.S. Supreme Court. In an email, Pinney explains that time for filing a certiorari petition for the Second Circuit’s Guo case and the Seventh Circuit version of the Servotronics case “remains open.”
Pinney notes that under the Supreme Court’s Covid-19 order, the deadline for all certiorari petitions has been extended to 150 days from 90 days. It is unknown how long this extension will last but, Pinney notes, for the purposes of the current rule, the Second Circuit’s Guo decision was issued on July 8 and was revised a day later. “Accordingly,” notes Pinney, “the last date for the filing for certiorari is Monday, Dec. 7, 2020.”
Pinney adds that an arbitration award was expected to be issued in August, and it’s likely the case is moot, dampening cert prospects.
With similar math, Pinney says that the Seventh Circuit’s Servotronics case deadline for a cert filing is Feb. 19, 2021.
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While the Seventh Circuit joined the Fifth and Second Circuits, the Ninth Circuit is still making its determination on §1782 after hearing arguments on Sept. 14 in HRC-Hainan Holding Co. L.L.C. v. Yihan Hu, No. 20-15371 (video of the arguments is available at https://bit.ly/34V2p6A).
During the arguments last month, both parties explained the importance of the Ninth Circuit ruling on this issue given the circuit split and the likelihood of the issue coming up again in a similar suit between the parties.
Katherine Burghardt Kramer, arguing for the appellant, Yihan Hu, claimed that the phrase “foreign and international tribunal” is ambiguous within the context of §1782. She argued that while the phrase “tribunal” could be interpreted as including arbitration, it also could be interpreted as excluding it.
Circuit Judge Michelle T. Friedland inquired whether the legislative history should be looked at by the panel. Kramer, a partner in New York’s DGW Kramer LLP, responded that inference from silence could be drawn. She asked that if Congress had intended the 1964 amendment to expand the scope to private arbitration, why wasn’t it mentioned?
Circuit Judge Paul J. Watford asked why the statute should not include private arbitration. Katherine Kramer explained that the mandate told Congress to look at courts and quasi-judicial agencies. Because arbitration is a “privately constituted body that hears your disputes and then disbands,” it is different from a government-sanctioned court or quasi-judicial agency, she argued.
Watford asked why the court should not view these arbitrations as adjuncts of the countries’ established court systems. He acknowledged it was not a direct relationship, but that these arbitrations provide an auxiliary role, and that he assumes that China, the international venue in question, likely has similar mechanisms.
Attorney Kramer disagreed with linking arbitration to judicial systems, and discussed the finality of arbitrations–that there is no way to remedy a bad decision on the merits within the court system.
Circuit Judge Eric D. Miller also highlighted the relevance of §1781, where, according to Katherine Kramer, the phrase “foreign or international tribunal . . . would not make sense” if it included private arbitrations, creating an implication of governmental involvement.
Grant Kim, arguing for the appellee, HRC-Hainan Holding, looked at the historical context of the 1964 amendment. He said that in 1958, when the international commission mandate came out, the United States “was just entering the world stage,” coupled with an increase in businesses investing overseas. Kim claims that the government had an incentive to modernize its ability to cope with this expansion of international business activity.
He said that the mandate focused on the private activities of U.S. citizens doing business abroad and that there should be no doubt international arbitrations are a part of this. People would not be investing in China if there was no sound system like CIETAC to handle disputes, highlighting the importance of private arbitrations.
CIETAC is the China International Economic and Trade Arbitration Commission, which was conducting the arbitration in the case.
While Kim, a partner in the LimNexus law firm in San Francisco, admitted that the statute does not expressly include or exclude private international arbitrations as a “foreign or international tribunal,” he notes the old version of §1782 had language that said, “that is established pursuant to an agreement between the United States and a foreign government.” Kim explained that the statute already had an exemplar but dropped it. He claimed this is the most compelling piece of legislative history there is.
Judge Watford asked Kim about the context of “foreign or international tribunal” within §1781. Kim noted that terms may have different meanings within different statutes. He also noted the judicial usage of the phrase has not suggested that tribunal can only mean court.
When speaking on policy, Kim argued it would be a strong position to promote arbitration in this way. He explained that §1782 is typically used for third parties outside of the United States, and the tribunal will likely not have jurisdiction, so assisting in discovery with the U.S. statute would be especially crucial to fair results and efficiency. Ultimately, Kim argued that judges and arbitral tribunals’ discretion should be trusted to handle the process and streamline where they can.
Both arguments make excellent points, and time will tell where the Ninth Circuit court falls on this issue. A few things are clear beyond the ambiguities in the term “tribunal,” including its context within §1782, and what Intel sought to achieve by referencing Smit’s article, which has been interpreted differently between the Circuit Courts. Supreme Court clarification on §1782 is much needed, so neutrals, stakeholders, and parties within arbitrations can best prepare themselves and adapt to potential changes in the discovery process that may be looming.
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Finally, another §1782 case, EWG Gasspeicher GMBH v. Halliburton Co., Case No. 20‐1830, is on appeal but has not yet been taken up by the Third Circuit. A Notice of Appeal was filed on April 16, 2020, after a March 17 decision (available at https://bit.ly/309GCYb), by Delaware U.S. District Court Judge Richard G. Andrews, who denied §1782 application for use in an arbitration under the German Arbitration Institute (DIA) rules.
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The author, a CPR Institute Fall 2020 intern, is a second-year law student at Brooklyn Law School.