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The Second Circuit Strikes Back: Exploring the Genre of American Discovery in Pvt Int'l Arbitration

Karan Rukhana*


Discovery is inherently a daunting task particularly in cross-border international arbitration. 28 U.S.C. § 1782 makes it a little easier. This provision of the United States Code is routinely called upon to obtain evidence through federal courts of the United States to be used in foreign proceedings. However, on July 8, 2020, the Court of Appeals of the Second Circuit in Hanwei Guo v. Deutsche Bank [i] somewhat interrupted a brief reverie following Abdul Latif Jameel Transportation Company Limited v. FedEx Corporation [ii] – a celebrated decision rendered by Court of Appeals of the Sixth Circuit on September 19, 2019 which allowed § 1782 to be used in private international arbitrations. Hanwei along with the decisions of the Fourth and Sixth Circuits discussed below are of immense importance, as they not only decide, as they do, the use of § 1782 discovery in private international arbitration, but also fortify the existing circuit split. This article is oriented to explain the scope of § 1782 and review the recent decisions of the Courts of Appeals to discern the prevailing position.



28 U.S.C. § 1782 AND THE INTEL FACTORS


Before reviewing the authorities, it is necessary to introduce 28 U.S.C. §1782— a provision lionized as embodying the United States’ pro-arbitration regime. §1782 allows persons interested to seek assistance of federal courts for production of evidence, documents and testimony to be used in a proceeding before a foreign or international tribunal. In 1964, Congress reformed § 1782’s predecessor by, amongst others, substituting ‘court’ for ‘tribunal’. This was a welcomed change as it broadened the scope of the provision allowing for U.S.-based discovery in foreign proceedings before administrative and quasi-judicial tribunals, as opposed to only traditional courts. Since then, particularly in the recent decades, the use of this device has proliferated.


For a discovery application to succeed, it must not only meet the statutory requirements of § 1782, but also satisfy the discretionary or, in American legal parlance, the Intel factors, as the power to order discovery is discretionary and not obligatory. {See Intel Corp v. ADM [iii]}. Therefore, the application must pass a two-stage inquiry: first, satisfy the statutory requirements: (i) the person from whom the discovery is sought must reside or be found within the territorial jurisdiction of the district court; (ii) the evidence sought is for use in a proceeding before a foreign or international tribunal; (iii) the applicant must be a foreign or international tribunal or an “interested person”; and (iv) the evidence sought should not be protected by privilege. This makes way for the second stage i.e. considering the Intel factors: (i) whether the person from whom discovery is sought is a party to the foreign proceeding, if yes, then there is no apparent need to assist as the tribunal has jurisdiction over such person and can order discovery itself; (ii) nature of foreign proceeding and the receptivity of the foreign court or tribunal to federal court’s assistance; (iii) whether the request is an attempt to circumvent any foreign proof gathering restrictions or other foreign policies; and (iv) whether the request is unduly intrusive or burdensome.


Mindful of the statutory requirements, it is crucial to determine whether a private arbitral tribunal seated outside of the U.S. qualifies as a ‘foreign or international tribunal’. The issue achieves great significance as it determines whether or not federal courts can aid discovery in private international arbitration. Despite the conspectus of decisions, ambiguity persists.



FOREIGN OR INTERNATIONAL TRIBUNAL


Intel, decided on June 21, 2004, is the only Supreme Court decision on § 1782 but it is of little guidance as to the construction of the phrase ‘foreign or international tribunal’. This vacuum has led to a deep division between the Courts of Appeals on the issue. Instead of attempting to harmonize the conflicting decisions of the past, the following recent decisions of the Sixth, Fourth, and Second Circuits have cemented the already existing discord.


In Abdul Latif, the Sixth Circuit Court of Appeals was concerned with a discovery application in aid of a Dubai based DIFC-LCIA arbitration. The district court rejected the application as it stated that ‘foreign or international tribunal’ does not cover private, contracted-for arbitrations. Justice John Bush writing for the Court of Appeals reversed the lower court’s order and remanded it back for further consideration.


The Sixth Circuit held that the provision allows discovery for use in private international arbitrations. In an initial step the Court discussed the ordinary meaning of ‘tribunal’, the context in which ‘tribunal’ was used elsewhere in the statute, and the meaning attributed to it in legal writing. In the Court’s opinion, the pedigree of statutory interpretation principles allowed a broad reading to include private international tribunals. It then supplanted its interpretation by relying on Intel. The court was persuaded by the Intel Court’s finding that the provision extends to proceedings before the European Competition Commission. According to the Sixth Circuit this finding legitimized that, as per Intel, ‘tribunal’ even applies to “non-judicial proceedings”. It then found comfort in the Intel Court quoting a law review article authored by a professor who was part of the 1964 amendment drafting team. The article explained that ‘tribunal’ includes “investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies”. The court then turned to assess the conflicting decisions of NBC v. Bear Sterns [iv] and Republic of Kazakhstan v. Biedermann Int’l [v] rendered in 1999, prior to Intel, by the Second and Fifth Circuits respectively. Interestingly, the Abdul Latif Court did not venture into the effect of these decisions following Intel. In 1999, the Second and Fifth Circuit courts decided against the inclusion of private arbitral tribunals within the provision predicating their finding on a detailed analysis of the provision’s legislative history. The Court then proceeded with a comparative analysis of §1782’s predecessor, 22 U.S.C. §§ 270-270g, from where the term ‘international tribunal’ was imported, and §1782. It had no hesitation in holding that the word ‘tribunal’ as used in §1782 carried the same ilk as in §§ 270-270g where it only applied to intergovernmental tribunals. Stemming from the congressional reports, §§ 270-270g was expanded to only apply to intergovernmental tribunals not involving the United States and not private arbitrations. What further appealed to the NBC Court was the absence of any mention of ‘private dispute resolution proceedings’ in the congressional reports surrounding the amendment.


The Sixth Circuit was not impressed. First, it downplayed the weight afforded to legislative history in statutory interpretation and second, notwithstanding that, it held that the absence of private dispute resolution in congressional reports was not indicative. Rather, it stated, that there was no contrary indicia in the legislative history of the provision to support a limited expansion excluding private arbitrations. It also dismissed the policy concerns argued by FedEx stating that they were either argued before and answered by, the Intel Court or were assuaged by the discretion district courts enjoyed under the provision.


On March 30, 2020, the Fourth Circuit in Servotronics, Inc. v. The Boeing Company [vi] joined the Sixth Circuit in holding ‘tribunals’ to include private international arbitrations. It reversed the district court’s order, which, in the absence of a controlling decision of the Fourth Circuit, heavily relied on NBC and Beidermann, rejecting the discovery application. In the Fourth Circuit’s opinion, reliance on NBC and Beidermann, post Intel—which broadly interpreted §1782 to include quasi-judicial proceedings—was incorrect as the Supreme Court’s ruling placed the two decisions in doubt. Apart for its holding, Servotronics, now a controlling decision in the Fourth Circuit, is significant as it not only echoes Abdul Latif but adds another dimension to the pro-private international arbitration interpretation. Boeing argued that § 1782 does not apply to private international arbitrations which are private and do not enjoy governmental authority. In response, after reviewing the scope and purpose of the FAA and the English Arbitration Act, 1996 i.e. to give legislative recognition to arbitration as a favoured alternative to litigation, the Court stated that, contrary to Boeing’s contention, arbitration was certainly a product of government conferred authority. Therefore, even if one were to restrictively read the provision to only include ‘entities acting with the authority of the state’ as in NBC and Beidermann, a foreign, private arbitral tribunal would be covered by § 1782.


After Intel, the district courts sitting in the Second Circuit were at odds on the issue as there was lack of clarity on whether NBC was still controlling. In Hanwei, the Second Circuit had the opportunity to settle the intra-circuit split and revisit NBC in light of Intel. It upheld NBC. Antithetical to Abdul Latif and Servotronics, the Second Circuit reiterated its restrictive interpretation of the provision. As per the Court, the question whether or not § 1782 discovery was available for private international arbitrations, was not before the Intel court; and, therefore, Intel did not disturb NBC. The Court referred to Abdul Latif and Servotronics to reinforce this point. It relied on the absence of any express finding that Intel displaced NBC in both, Abdul Latif and Servotronics, to conclude that even as per these Courts, NBC was still controlling in the Second District. As for the law review article quoted in Intel, and relied on in Abdul Latif, the Second Circuit termed it as “passing reference in dicta” which cannot cast any doubt on NBC’s standing. Even if it did, the Second Circuit explained that the reference to ‘arbitral tribunals’ in the quote from the article can be harmoniously read with NBC by construing ‘arbitral tribunals’ to mean state-sponsored arbitrations and not private arbitrations.



CONCLUSION


Although not readily apparent, the filament underlying the two interpretations is pro-arbitration. The Fourth and Sixth Circuits’ interpretation allows discovery assistance in foreign arbitrations, whereas the Second and Fifth Circuits’ interpretation is less intrusive as it minimizes court interference in arbitration—which is one of the elementary features of a pro-arbitration regime. Although, the former interpretation appears more progressive, it is uncertain that it will prevail. There are cases pending before other Courts of Appeals waiting to weigh in on the issue. It is also reported that Rolls-Royce, the second respondent in Servotronics, may petition the U.S. Supreme Court to decide this very issue. Whether or not the Supreme Court grants certiorari will depend on the outcome of the pending cases. Either way, some much needed clarity is expected.


*Karan Rukhana is a counsel at Chambers of Darius Khambata, Senior Counsel, based in Mumbai, specialising in domestic and international arbitration. Prior to resuming his practice in Mumbai, Karan interned at Three Crowns LLP and Dechert LLP in Washington, DC where he gained experience in international arbitration. Karan Rukhana is licensed to practice in India and awaiting admission to the New York State Bar.



[i] No. 19-781, __ F.3d. __ (2d Cir. July 8, 2020).


[ii] 939 F.3d 710.


[iii] 542 U.S. 241.


[iv] 165 F.3d 184 (2d Cir. 1999).


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


[vi] 954 F.3d 209 (4th Cir. 2020).

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