August 2, 2012

Federal Appellate Court Finds Key U.S. Discovery Tool Can Be Used to Aid Foreign Arbitrations

Holland & Knight Alert
Michael J. Frevola

The Eleventh Circuit, the federal appellate court for the southeast region of the U.S. including Florida, in In re Consorcio Ecuatoriano de Telecomunicaciones S.A.,1 recently decided a case with broad implications for foreign litigants involved in private arbitration and seeking documents or testimony from witnesses physically located in the United States.

The pertinent statute is 28 U.S.C. §1782 — the discovery tool that Consorcio noted is the "product of over 150 years of congressional effort to provide federal-court assistance in gathering evidence for use in foreign tribunals." Section 1782 applications have been employed to depose vessel officers and crew on vessels calling in the U.S., to obtain documents from vessel management companies, and even to seek bank account information from New York-based intermediary banks where such asset analysis can aid the underlying proceeding and subsequent arbitration award/judgment enforcement phase.

Consorcio Is Important for Several Reasons

Initially, the Eleventh Circuit affirmed the lower court ruling allowing discovery in aid of a private commercial arbitration in Ecuador (which the court deemed a "tribunal" thus allowing the application of Section 1782). A court has wide discretion whether to order a person or company in the U.S. to produce documents or give testimony for use in a "proceeding in a foreign or international tribunal." Before this ruling, the appellate courts overseeing key maritime jurisdictions in New York and Texas (the Second and Fifth Circuits, respectively) had found private arbitrations were not "tribunals" based on their respective analysis of case law and legislative history. The Eleventh Circuit acknowledged this authority but noted the Second and Fifth Circuit made their rulings before the U.S. Supreme Court's seminal ruling in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), in which decision the Supreme Court emphasized that the key issue is not whether the tribunal is private or quasi-governmental, but rather whether the tribunal acts as a first-instance adjudicative decisionmaker which ultimately is subject to judicial review. In support of its decision, the Eleventh Circuit cited In re Winning (HK) Shipping Co., 2010 WL 1796579 (S.D. Fla. Apr. 30, 2010), appropriately named, where the court allowed discovery in Florida in support of a soon-to-be-filed English arbitration.2

Consorcio is significant not only because it is the first U.S. federal appellate court to specifically hold private arbitrations to be "tribunals" under Section 1782, but also because it recognized that district courts can narrowly tailor document requests or discovery to ensure that the information requests were not abusive. As a result, the request for judicial assistance need not be an "all or nothing" prospect, with an overly broad request resulting in a flat denial of judicial assistance. Further, the court made clear that a party opposing discovery by arguing that discovery would be "unduly burdensome" is not enough — specific examples of overreaching must be articulated by the opposing party. Examples of document requests found appropriate are incorporated into the decision. The court also acknowledged the original application was ex parte without further discussion, implicitly acknowledging that seeking a Section 1782 discovery order without notice to one's opponent (or the discovery target) is entirely appropriate. This is a key issue in emergency situations where relief is immediately needed, or where concerns exist that the opposition or discovery target may hide or remove information before the court's order is issued.

High Court in England and Chinese Appeals Court Accept Section 1782

Discovery obtained as a result of Section 1782 applications has been well received in overseas proceedings. Indeed, England's highest court (then referred to as the House of Lords) in South Carolina Ins. Co. v. Assurantie Maatschappij "De Zeven Provincien" N.V. favorably referenced §1782 as a device that parties can use "in order to prepare and present their case."3 As a more recent example showing Chinese courts' acceptance of the process, in October 2008, in In re Application of Carsten Rehder Schhiffsmakler und Reederei GmbH & Co.,4 the United States District Court for the Middle District of Florida granted a German ship manager's discovery request to obtain information regarding the claimant's insurance settlement of its claim to use in a Chinese appellate proceeding to demonstrate that the claimant in the Chinese proceeding did not have standing to sue the German ship manager. The discovery application was granted, the information obtained confirmed that the claimant did not have standing to sue, and the Chinese appellate court reversed on appeal and dismissed the claimant's case. As part of the Chinese proceedings, the Chinese appellate court extended the ship manager's time to submit the materials that the ship manager was attempting to obtain in the U.S., and then allowed the materials to be considered on appeal despite not being part of the record before the trial court.5

U.S. Appellate Courts May Be Willing to Revisit Section 1782

In summary, if documents — or a person who can provide testimony — are located in the U.S., the person seeking relief is an "interested person" (e.g., a party to a non-U.S. arbitration), and the information being produced is for use in a foreign proceeding (court or arbitral proceeding), In re Consorcio lends support to an application before a U.S. federal court. Further, given that the cases in New York and Texas were decided before Intel, arguably courts in those jurisdictions could be approached with a §1782 application based on an arbitration and while the reviewing district court may well feel compelled to follow prior local precedent and deny the application, the relevant appellate courts might now be willing to revisit the issue (while permitting the stay of release of the relevant information pending review of the issue).

1 ___F.3d ___, 2012 WL 2369166 (11th Cir. June 25, 2012).

2 Holland & Knight's Maritime Team was counsel of record in In re Winning (HK) Shipping Co. The team argued that an English arbitral proceeding is a "tribunal" for purposes of the discovery statute.

3 [1986] 2 Lloyd's L. Rep.317, 326.

4 Case No. 6:08-mc-108-35-DAB.

5 Holland & Knight's Maritime Team was counsel of record in In re Application of Carsten Rehder Schhiffsmakler und Reederei GmbH & Co. on behalf of the German ship manager in obtaining the discovery order and providing the documents obtained for use in the Chinese appellate proceeding.

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