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Seventh Circuit Holds that Litigants cannot peition the Federal Courts to Aid 'Discovery' in International Commercial Arbitration

by Michael McIlwrath

October 2020

Michael  McIlwrath

Under 28 USC 1782, litigants may petition federal courts for orders of discovery in “aid of a foreign or international tribunal.” Ever since the Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices, Inc., 541 U.S. 241 (2004), however, it has been an open question – on which the courts are now split – whether this extends to international commercial arbitration.

The Seventh Circuit has recently concluded it does not, but with an interesting observation for parties who may seek discovery in those courts that have reached the opposite conclusion.

In Servotronics Inc. v. Rolls-Royce PLC, No. 19-1847, 2020 WL 5640466 (7th Cir. Sept. 22, 2020), the Court joined the Second and Fifth Circuits in holding that arbitrators sitting in private commercial disputes do not qualify as “foreign or international tribunals” under section 1782. In reaching this result, the Court offered an interesting justification for limiting the statute’s application, which is that extending it to private foreign arbitrations would create a conflict with the Federal Arbitration Act.  Unlike section 1782, the FAA “permits the arbitration panel—but not the parties—to summon witnesses before the panel to testify and produce documents and to petition the district court to enforce the summons.”  Id. at *6.  Thus, the Court observed:

It’s hard to conjure a rationale for giving parties to private foreign arbitrations such broad access to federal-court discovery assistance in the United States while precluding such discovery assistance for litigants in domestic arbitrations.

By placing this focus on who is requesting the discovery – the arbitrators or the litigants – the Seventh Circuit may have provided helpful guidance to parties seeking to obtain discovery in the US through section 1782, at least in those courts that hold that private commercial arbitration qualifies as a “foreign or international tribunal” (notably the Fourth and Sixth Circuits).  See Julia Sherman, Section 1782 Discovery: California District Court Follows Sixth and Fourth Circuits in Holding Statute Applies to Private Arbitral Tribunals, Kluwer Arbitration Blog (20 Apr 2020).[1]

Rather than a litigant submitting a discovery request directly to a US court, a more prudent approach may be for the request to come from the arbitrator, or with an indication that the arbitrator has authorized the discovery.  Courts may take some comfort knowing that arbitrators sitting in the foreign proceeding have reviewed the request and believe the discovery is necessary and not an abuse of section 1782.

Indeed, in a forthcoming article, Yanbai Andrea Wang, of the University of Pennsylvania Law School, summarizes research of US court decisions to grant or deny requests for discovery for use in foreign proceedings. She found that such requests are more likely to be granted when they come from the foreign authorities – both commercial courts and private arbitrators – than they are when simply submitted by the litigants.  See Yanbai Andrea Wang, Exporting American Discovery, Univ. Chicago Law Rev 2089 (2020).

As a practical matter, what does this all mean?

First, that section 1782 is not available to parties in a foreign commercial arbitration seeking discovery in the Second, Fifth and Seventh Circuits, because they do not recognize arbitration as a “foreign or international tribunal”.

Second, for courts that hold the opposite (the Fourth and the Sixth Circuits), or those courts that have yet to decide whether commercial arbitrations qualify as a “foreign or international tribunal,” a request submitted by the arbitrator, or authorized by the arbitrator, may stand a greater chance of succeeding.

An interesting effect of submitting a discovery request to arbitrators in a foreign commercial arbitration, before applying to the US courts, may be to deter the use of 1782 to obtain wide-ranging, US-style discovery.  This is because, in deciding whether to seek or grant discovery, international arbitral tribunals look to their authority and the reasonableness of the request under the rules applicable to the arbitration, not the scope of discovery available in the country where it is sought. If, for example, arbitrators in a foreign-sited proceeding were to look to the IBA’s Rules of Evidence in International Commercial Arbitration for guidance, as they often do, they would find no basis for granting depositions and little grounds to seek or authorize a request for broad categories of documents.

As a result, a litigant who presents a sweeping demand for categories of documents from a US party may find it will have been substantially paired down by the arbitrators to only a few documents by the time it reaches the US courts.

[1] http://arbitrationblog.kluwerarbitration.com/2020/04/20/section-1782-discovery-california-district-court-follows-sixth-and-fourth-circuits-in-holding-statute-applies-to-private-arbitral-tribunals/, last accessed 29 Sept 2020.

 

 

 

 

Michael McIlwrath is Global Chief Litigation Counsel, Litigation, for the GE Oil & Gas division in Florence, Italy. His experience in international arbitration includes representing the company in disputes under the rules of various international and regional arbitration institutions and under ad hoc procedures around the world, and in coordinating the activities of outside counsel in domestic court and arbitral proceedings. He has published numerous articles in the fields of international arbitration, mediation, and negotiation. He also hosts International Dispute Negotiation, a podcast made available by CPR (http://www.cpradr.org) with interviews from leading professionals around the world about ways of accepting, mitigating, and managing risks in international contracts. He is a graduate of the University of California, Berkeley (AB) and Cornell Law School (JD). He was Chair of the International Mediation Institute (IMI), in 2009 and continues to serve on its Board of Directors. In addition, he was the co-vice chair with mediator Judith Meyer (and chair, Singapore ambassador at large Tommy Koh) of the IMI independent Standards Committee. He is also a member of the board of directors of the National Center for Science Education, in Oakland, California. Michael is a member of the European Advisory Committee of CPR, and acted as an industry representative to the European Commission (Justice) in the creation of a European ADR Code of Conduct.



Website: imimediation.org/michael-mcilrath-biography

Additional articles by Michael McIlwrath
The views expressed by authors are their own and do not necessarily reflect the views of Resourceful Internet Solutions, Inc., Arbitrate.com or of reviewing editors.
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