Discovery in International Arbitration: The Ever-Expanding Scope
- Two recent U.S. federal appellate court decisions addressing a U.S. statute often used to obtain discovery for use in international arbitration will have a significant impact on the conduct of cross-border dispute resolution.
- In the first case, the U.S. Court of Appeals for the Sixth Circuit recently allowed parties engaged in private international arbitration with a situs outside of the U.S. to obtain discovery in the U.S. In so doing, the court was called upon to interpret a federal statute, 28 U.S.C. § 1782 (a). Under § 1782 (a), a U.S. federal district court "in the district in which a person resides or is found" may order discovery "for use in a proceeding in a foreign or international tribunal" upon application by "any interested person."
- In a subsequent unrelated decision, the U.S. Court of Appeals for the Second Circuit held that § 1782 (a)'s "resides or is found" language extends its reach to the limits of personal jurisdiction consistent with due process, leaving to the U.S. federal district court's discretion on a case-by-case basis whether such discovery might include discovery of materials located outside the U.S.
Two recent U.S. federal appellate court decisions addressing a U.S. statute often used to obtain discovery for use in international arbitration will have a significant impact on the conduct of cross-border dispute resolution. In both cases, the court was called upon to interpret 28 U.S.C. § 1782 (a). Under § 1782 (a), a U.S. federal district court "in the district in which a person resides or is found" may order discovery "for use in a proceeding in a foreign or international tribunal" upon application by "any interested person." Departing from the holdings of other federal appellate courts, the U.S. Court of Appeals for the Sixth Circuit held that the phrase "foreign or international tribunal" included private commercial arbitrations. In a subsequent – and unrelated decision – the U.S. Court of Appeals for the Second Circuit held that § 1782 (a)'s "resides or is found" language extends its reach to the limits of personal jurisdiction consistent with due process, and that there is no per se bar to the extraterritorial application of § 1782. In both cases, the appellate courts noted that whether or to what extent the requested discovery should be allowed was within the discretion of the district court.
Private Commercial Arbitration Falls Within the Purview of § 1782 (a)
Departing from the holdings of other federal courts of appeal, including the Second (New York, Connecticut, Vermont) and Fifth Circuits (Louisiana, Mississippi, Texas), the Sixth Circuit (Kentucky, Michigan, Ohio, Tennessee) recently ruled that § 1782(a) permits discovery for use in private commercial arbitration. The underlying dispute in Abdul Latif Jameel Transp. Co. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019), involved claims arising under a General Service Provider agreement (GSP) between Abdul Latif Jameel Transportation Co.(ALJ) and FedEx International, under which ALJ agreed to be FedEx International's delivery-services partner in Saudi Arabia. Disputes under the GSP were to be arbitrated in Dubai under the rules of the Dubai International Financial Centre-London Court of International Arbitration (DIFC-LCIA). The parties also entered into a Domestic Service Agreement (DSA), under which FedEx International agreed to provide ALJ with certain support services, and disputes were to be arbitrated in Saudi Arabia, under the laws of that country. When FedEx International announced it would not be renewing the GSP and that ALJ would have to rebid for the work, ALJ commenced arbitration against FedEx International in Saudi Arabia before a panel constituted under the laws of Saudi Arabia. A few weeks later, FedEx International commenced arbitration in Dubai under the rules of the DIFC-LCIA. The Saudi Arabia arbitration was dismissed, and ALJ appealed.
Although FedEx Corp. was not a party to the GSP or DSA and was not named as a party in either arbitration, ALJ filed an application for discovery under 28 U.S.C. § 1782 in the U.S. District Court for the Western District of Tennessee, the district where FedEx Corp. is headquartered. Alleging that FedEx Corp. was significantly involved in luring ALJ into the contractual relationship with FedEx International and that FedEx Corp. (who, subsequent to the contracts with ALJ, acquired TNT Express, a competitor of ALJ in Saudi Arabia) misled ALJ into believing its future contractual relationship with FedEx was secure, ALJ sought document discovery as well as deposition testimony from a corporate representative of FedEx Corp. The district court denied ALJ's application, finding, inter alia, that the DIFC-LICA arbitration panel did not constitute a "foreign or international tribunal" within the meaning of § 1782(a). The Sixth Circuit reversed.
In reversing the district court, the Sixth Circuit concluded that the DIFC-LICA arbitration panel – a panel sitting in a privately contracted-for arbitration – qualified as a "foreign or international tribunal." In reaching this conclusion, the court focused on the ordinary meaning of the word "tribunal." In particular, the court noted that there was no evidence that the phrases "foreign tribunal" or "international tribunal" are terms of art or that any specialized meaning was ascribed to the phrases. The court then looked to ordinary dictionary definitions, where it found support for a broad reading of the word "tribunal" to include private arbitration panels; the use of the word "tribunal" in legal writings, where it found support in court decisions that predated the statute for a broad interpretation of the word; and the use of the word "tribunal" in the statute itself, where it found that other uses of the word did not "dictate a more limited reading." In so doing, the Sixth Circuit held that the word "tribunal" included private, contracted-for arbitration and that the DIFC-LICA panel was a "foreign or international tribunal" within the meaning of 28 U.S.C. § 1782 (a).
The Sixth Circuit was not dissuaded by prior decisions of the Second and Fifth Circuits, which held that the word "tribunal" includes only "governmental or intergovernmental arbitral tribunals and conventional courts and other state-sponsored adjudicatory bodies." See Republic of Kasakhstan v. Biedermann Int'l, 168 F.3d 880, 882 (5th Cir. 1999); National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184, 190 (2d Cir. 1999). Significantly, the Sixth Circuit disagreed with the Second and Fifth Circuit's reliance on legislative history and statements in congressional reports. It found that the congressional statements did not exclude privately constituted proceedings from the meaning of "tribunal," noting that in repealing the predecessor statute to § 1782 (a), Congress' intent was to expand § 1782 (a)'s applicability, and there was no indication that such expansion "stopped short of private arbitration."
Finally, the Sixth Circuit was not persuaded by policy arguments, which included the argument that allowing § 1782 (a) to apply to private arbitration would afford foreign parties in arbitration abroad broader discovery than allowed in arbitration in the U.S. or that allowing such discovery would defeat the principal purpose of arbitration, namely saving parties time and money associated with court litigation. The Sixth Circuit noted that district courts have wide discretion in determining whether to order the discovery requested and the extent to which the discovery would be allowed.
Extraterritorial Discovery Allowed Under 28 U.S.C. § 1782
Shortly after the Sixth Circuit's decision in Abdul Latif, the Second Circuit addressed two issues concerning the "reach" of § 1782. In In Re: Application of Antonio del Valle Ruiz, 2019 WL 4924395 (2d Cir. Oct. 7, 2019), the Second Circuit held that there was no per se bar to the extraterritorial application of § 1782, and that the district court may exercise its discretion as to whether to allow such discovery. Further, the court examined the jurisdictional requirement that, to obtain discovery under § 1782, the person or entity to provide such discovery must reside or be found in the district, and held that this requirement extended § 1782's reach "to the limits of personal jurisdiction consistent with due process."
In del Valle Ruiz, a group of investors of a failing bank (Banco Popular Español, S.A., or BPE) brought legal challenges in Europe, including an international arbitration, to the government-forced sale of the bank. The del Valle Ruiz investors filed a § 1782 petition in the U.S. District Court for the Southern District of New York, seeking discovery from Banco Santander (who had bid to acquire the bank) and its wholly owned subsidiaries, including a subsidiary (SIS) incorporated in Delaware with its principal place of business in New York City.
Discovery from Santander, a Spanish banking company with its principal place of business in Madrid, Spain, was not permitted, as it was not "found" in the district. After analyzing the applicable law on general versus specific jurisdiction, and due process afforded a nonparty such as Santander, the court held that "where the discovery material sought proximately resulted from the respondent's forum contacts, that would be sufficient to establish specific jurisdiction for ordering discovery." In agreeing, for the most part, with the lower court's findings, the Second Circuit found that all but one of Santander's related contacts with New York all postdated the sale of the bank and therefore the required proximity was lacking. With respect to the one contact that was connected to the discovery being sought, the court also found proximity lacking, as the New York contact arose from Santander's failed bid to acquire the bank and not from the eventual government-forced sale. Since the petitioner's claims arose from the government sale, the Second Circuit upheld the district court's finding that it lacked personal jurisdiction over Santander.
The investors in del Valle Ruiz also sought discovery from a Santander subsidiary, SIS, that had its principal place of business in New York but where the evidence sought was located abroad. Relying on a canon of statutory construction known as the "presumption against extraterritoriality," Santander (on behalf of SIS) argued that the district court erred by not apply a per se bar against discovery seeking information located abroad. Noting that the issue of whether § 1782 can be used to reach information stored overseas had not been addressed by the Second Circuit, the court looked to the U.S. Court of Appeals for the Eleventh Circuit, the first circuit to find that § 1782 allows extraterritorial discovery. Reasoning that since § 1782 permitted discovery pursuant to the Federal Rules of Civil Procedure, and since the Federal Rules authorize extraterritorial discovery, § 1782 likewise must permit such discovery. Finding this reasoning persuasive, the Second Circuit joined the Eleventh Circuit in holding that "a district court is not categorically barred from allowing discovery under § 1782 of evidence located abroad." Where the evidence is located is a factor, though, for the district court to consider when deciding whether to exercise its discretion to permit such discovery.
Given the complexity of many cross-border disputes, the involvement of multinational companies that often are parties in these disputes, and the reality that information relevant and necessary to the dispute resolution process rarely will be located in one jurisdiction, the ability to seek evidence from a party in the U.S., even if that evidence is located outside of the U.S., using § 1782 is a significant tool available to parties. The willingness of courts to permit applications by parties engaged in private arbitration outside of the U.S. presents an advantage for the party seeking discovery from a U.S.-based entity. For all parties, it adds additional costs, embroils them in court proceedings, and will likely delay proceedings. It may also spawn tangential disputes, depending on where the extraterritorial evidence may be located and whether that forum (a non-U.S. forum) may also have a say in whether the evidence may be produced.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.