2nd Circuit Tilts the Scale in Favor of Discovery in Aid of Arbitration

The recent decision by the United States District Court for the Southern District of New York in In re Ex Parte Application of Kleimar N.V., No. 16-MC-355, 2016 WL 6906712 (S.D.N.Y. Nov. 16, 2016) (“Kleimar”), which allowed discovery in the United States in favor of commercial arbitration pending in London under the rules of the London Maritime Arbitrators Association, placed a heavy thumb on the scale in favor of discovery in the aid of arbitration. In this case, the court held that an arbitral tribunal sitting under the rules of the London Maritime Arbitrators Association, a private commercial arbitration institution, is a “foreign tribunal” pursuant to 28 U.S.C. § 1782.

Those who are familiar with the international dispute resolution arena have long been aware of the powerful discovery device set forth in 28 U.S.C. § 1782. The statute is the product of nearly 150 years of efforts by Congress to provide federal court assistance in gathering evidence for use in foreign tribunals. The power and scope of the authority by which federal courts have to assist foreign tribunals has markedly expanded since the law has been adopted. In its present form, 28 U.S.C. § 1782 provides foreign parties a direct access to United States courts to obtain documents and witness testimony avoiding the hurdles of obtaining letters rogatory or pursuing requests under international conventions. Section 1782(a) provides 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 …. The order may be made …. upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. (Emphasis added).

The key language bearing on the availability of discovery in aid of foreign arbitration is whether the proceeding is “tribunal” within the meaning of the statute. The statute does not define the term “tribunal,” and historically, the courts tended to hold that only national courts could qualify as “tribunals” under 28 U.S.C. § 1782. Their rational oftentimes came down to policy considerations. For instance, in Republic of Kaz. v. Biedermann Int’l, 168 F.3d 880, 883 (5th Cir. 1999), the Fifth Circuit explained that “[t]he provision was enlarged to further comity among nations, not to complicate and undermine the salutary device of private international arbitration.” The policy considerations also impacted the Second Circuit’s exclusion. See Nat’l Broad. Co. v. Bear Stearns & Co., 165 F.3d 184, 191 (2d Cir. 1999) (“In sum, policy considerations of some magnitude reinforce our conclusion, based upon an analysis of the text and legislative history of §1782, that Congress did not intend for that statute to apply to an arbitral body established by private parties.”).

However, in 2004 the Supreme Court refused to draw a bright line at the state court proceedings. In a seminal case, Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the Court held that the Directorate-General for Competition of the Commission of the European Communities was a “tribunal” within the meaning of Section 1782. The Court made it clear that the statutory right of foreign litigants to obtain evidence applies to proceedings in which the tribunal acts as a “first-instance decisionmaker.” Id. at 258. Although the Court’s rationale was primarily based on the legislative history of the statute, the Court also cited with approval a scholarly article of one of the drafters of Section 1782, Professor Smit, in which he specifically included arbitral tribunals in the lists of “tribunals” under the statute.

The Supreme Court’s Intel decision changed the legal landscape. Although the Court stopped short from holding that arbitral tribunals are “tribunals” within the meaning of Section 1782, its expansive reading of the statute and approving reference to the Professor Smit led to an exponential increase in attempts to obtain evidence in the United States in support of foreign arbitral proceedings. The number of cases under Section 1782, which mentioned words “arbitration” or “arbitral tribunal” grew from 9 before January 2004 to 117 thereafter based on a Westlaw case search. Despite the abundance of decisions, the courts are still in disagreement whether foreign arbitral tribunals fall within purview of the statute.

Some courts drew the line at whether the arbitration is “private” or “governmental or intergovernmental.” See, e.g., Nat’l Broad. Co. v. Bear Stearns & Co., 165 F.3d 184, 189 (2d Cir. 1999). This approach could lead to confusion given the potential lack of familiarity that U.S. domestic practitioners and courts have with international commercial arbitration. For example, in In re Matter of Application of Oxus Gold PLC, No. MISC.06-82, 2006 WL 2927615, at *6 (D.N.J. Oct. 11, 2006), the court found that international arbitration under United Nations Commission on International Trade Law (“UNCITRAL”) Rules was tribunal within the meaning of Section 1782 because it was “conducted by the United Nations Commission on International Law, a body operating under the United Nations and established by its member states.” (Emphasis added). The court did not explain how it found that the arbitration was “conducted by” the UNCITRAL. Rather than being an arbitral institution, UNCITRAL is a “subsidiary body of the General Assembly of the United Nations with the general mandate to further the progressive harmonization and unification of the law of international trade.” (See http://www.uncitral.org/uncitral/en/about/origin_faq.html). It is similar in its role to the Uniform Law Commission which creates non-binding draft laws to be adopted by states. UNCITRAL Arbitration Rules can be adopted by parties in purely private ad hoc proceedings, which have nothing to do with any “governmental or intergovernmental” institution.

Other courts have provided a rationale that more closely followed the Intel logic, holding that private arbitrations are tribunals for the purposes of Section 1782 because they are proceedings that result in dispositive rulings that are reviewable by a court. See, e.g., In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1224-25 (N.D. Ga. 2006). Kleimar appears to follow the same reasoning. As the Kleimar court directly noted, dictum in Intel “suggests the Supreme Court may consider private foreign arbitrations, in fact, within the scope of Section 1782.” The Kleimar court also noted that the Second Circuit has previously excluded private foreign arbitrations from the scope of qualifying Section 1782, but suggests that including private foreign arbitrations within the reach of §1782 is a foregone conclusion.

At the end of the day, the Kleimar case reinforces that 28 U.S.C. § 1782 is an important tool for the international arbitration practitioner to consider when evidence or witnesses are located in the United States. Indeed, the possibility of American-style discovery in the United States in aid of foreign commercial arbitrations presents broad opportunities for global practitioners.

AGG Observations 

• Section 1782 discovery is a powerful tool which should always be considered by international arbitration practitioners when there is a potential for evidence or witnesses which have a connection with the United States. Such evidence may include, for example, bank account information, third-party contractual documents and emails, corporate documents, and other related evidence. 
• While U.S. courts are used to discovery requests that are generally broader than requests in other countries, Section 1782 requests, especially when made on non-parties, need to be drafted carefully to avoid any undue burden. The request may also need to provide supporting documentation and statements to demonstrate the relevance of such requests to foreign proceedings in support of which the requests are made. 
• Work with U.S. counsel familiar with international arbitration and Section 1782. As the case In re Roz demonstrates, unfamiliarity with international arbitration could impact the court’s decision-making process.