Supreme Court to Decide Circuit Split over Section 1782: Will U.S. Discovery Creep into Private International Arbitration?
On March 22, 2021, the United States Supreme Court (the “Supreme Court”) agreed to hear a case involving the issue of whether 28 U.S.C. § 1782 (“Section 1782”), which allows foreign litigants to subpoena evidence from U.S. parties for use in “foreign or international tribunal” proceedings, not only applies to proceedings before competent courts of foreign countries and international commissions, but also to private international arbitration. This issue has caused a split among the U.S. Circuit Courts, with the Second, Fifth, and Seventh Circuits holding that Section 1782 cannot be used in aid of private foreign arbitration, and the Fourth and Sixth Circuits holding that it can. Until the Supreme Court rules, parties to international arbitration agreements should carefully weigh the benefits and risks posed by potential Section 1782 discovery, and carefully draft their agreements to account for the fact that, for now, courts have inconsistent interpretations about its availability for use in private international arbitration.
Background
Section 1782 allows “any interested person” to petition a U.S. district court for an order requiring a party who “resides or is found” within that district to produce evidence for use in proceedings before “a foreign or international tribunal.” This is a powerful tool, as it unlocks expansive US discovery mechanisms for use by parties to foreign proceedings. Consequently, there has been a notable uptick in Section 1782 discovery applications in recent years. The law, however, does not define what qualifies as a “foreign or international tribunal,” leaving it to the courts to decide which types of foreign proceedings can benefit from it.
The Supreme Court has previously reviewed the scope of Section 1782 in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) (“Intel”). That case involved the question of whether Section 1782 could be used to obtain evidence for use in a non-judicial international commission. The Court held that the Commission of the European Communities constituted a “tribunal” under Section 1782. While Intel did not involve the issue of Section 1782’s applicability to private international arbitration, in discussing the legislative intent behind the statute, the Court cited favorably a journal article that stated that “[t]he term ‘tribunal’ ... includes … arbitral tribunals,” among other adjudicative bodies. While interesting, the Court’s citation of this article is not enough to accurately predict how the Court will decide the issue now (especially as the Court’s composition has drastically changed since 2004). Several U.S. Circuit Courts, however, have addressed the issue directly, leading to a split over whether private international arbitration constitutes a “foreign or international tribunal” within the meaning of Section 1782.
The Supreme Court has now granted Servotronics’ petition for certiorari[1] to review the judgment of the U.S. Court of Appeals for the Seventh Circuit in Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2020) (“Rolls-Royce”). The Seventh Circuit, like the Second and Fifth Circuits, held that Section 1782 does not apply to private international arbitration. In its petition, Servotronics cited to the Fourth Circuit’s decision in Servotronics, Inc. v. The Boeing Company, 954 F.3d 209 (4th Cir. 2020) (“Boeing”) in which the court held the precise opposite, that Section 1782 includes discovery in aid of private international arbitration.[2] We previously wrote about the Seventh Circuit decision here and the Fourth Circuit decision here.
The Servotronics Cases
Both cases involved a Boeing aircraft engine that caught fire while being tested in South Carolina, which then caused substantial damage to the aircraft. After Rolls Royce (the engine manufacturer) reached a settlement with Boeing, it initiated an arbitration proceeding for indemnity against Servotronics, whose valves were used to build the engine. Servotronics then applied for subpoenas under Section 1782 in South Carolina and Illinois district courts to obtain evidence to use in a UK arbitral proceeding, leading to two appeals and two conflicting opinions in the Fourth and Seventh Circuits.
Boeing
In Boeing, the Fourth Circuit reversed the South Carolina district court’s holding that the UK arbitral proceeding was not a “foreign or international tribunal” under Section 1782. The court held that private international arbitration constitutes a “foreign or international tribunal” because (i) the statute’s legislative history evinces Congress’s intent to expand Section 1782 to include more than just formal judicial proceedings; (ii) even if, as Boeing argued, under Section 1782 a “tribunal” must be state-sponsored, private international arbitration meets that standard as both the UK and the US have legal regimes in place to regulate it and both jurisdictions promote arbitration as a “favored alternative to the judicial process” with “government-conferred authority”; and (iii) the concern that Section 1782 discovery requests would overburden arbitral proceedings is unfounded as Section 1782 is narrow in scope, allowing only limited discovery, and district court judges have broad discretion to tailor requests.
Rolls-Royce
The Seventh Circuit disagreed with its sister circuit, holding that the definition of “foreign or international tribunal” under Section 1782 does not include private international arbitration. Although “tribunal” is left undefined in Section 1782, the court adopts a narrow reading because (i) the statutory context implies excluding private arbitration from the definition; (ii) a narrow reading is consistent with the legislative intent of other federal statutes governing service of process and letters rogatory; and (iii) a narrow reading is consistent with the U.S. Federal Arbitration Act (the “FAA”), as including private international arbitration under the definition of “tribunal” would provide Section 1782 applicants greater access to evidence than the FAA confers on parties in domestic arbitration.
Conclusion
Although the Supreme Court has agreed to hear the Rolls-Royce case, it is unlikely to render a decision before the end of its current term this summer, so the divide among Circuit Courts will likely continue for at least another half year. If the Court agrees with the Fourth and Sixth Circuits, however, it could mark a sea change for international arbitration, with parties no longer reliably avoiding U.S. discovery simply by contracting for binding arbitration abroad, and practitioners and parties alike gaining a powerful tool for obtaining evidence. Until this issue is settled – and potentially even after, should the Supreme Court take an expansive view of Section 1782 – parties to international arbitration agreements should take extra caution to ensure that the potential use of Section 1782 has been fully considered and addressed, or otherwise risk an unexpected and potentially inconsistent result, depending upon the U.S. court with jurisdiction over their case.
