SCOTUS to untie the Gordian interpretation knot of whether private arbitrations qualify for discovery under Section 1782

SCOTUS

SCOTUS to untie the Gordian interpretation knot of whether private arbitrations qualify for discovery under Section 1782

By: Valeria Angelucci and Mario Sanchez

Last week, the Supreme Court of the United States (SCOTUS) granted a writ of certiorari in a Seventh Circuit appellate case, asking SCOTUS to resolve a circuit court split as to whether foreign private arbitral panels qualify as a “foreign or international tribunal” under 28 USC § 1782.[1]

Generally, Section 1782 codifies the international assistance from the United States federal courts in obtaining evidence for use in proceedings before a “foreign or international tribunal”. 28 USC § 1782. “Any interested person” can seek documents, testimony, or other types of evidence from a person who “resides or is found” in the respective district court’s jurisdiction. Applicants can seek discovery from to-be parties to the “reasonably contemplated” future proceedings, as well as from third parties that might otherwise not be subject to the foreign tribunals’ compelling powers.

The question at issue is a long-debated interpretation dispute – whether purely private arbitral panels qualify as a “foreign or international tribunal”. The Second, Fifth, and, most recently, Seventh Circuits answered this question in the negative, while the Fourth and Sixth Circuits answered in the affirmative.[2] The Eleventh Circuit said yes at first in 2012, but then vacated its opinion, and has since not addressed the issue.[3]

The “Yes” team argues that the Congress extended Section 1782’s reach to include “administrative and quasi-judicial” proceedings before decision-making bodies and thus, the statute should be read broadly to include private arbitral panels. The opponents point to the inconsistency of allowing extensive discovery in aid of foreign arbitrations that exceeds the discovery permitted under the Federal Arbitration Act. Both camps find support in statutory interpretation.

The need for SCOTUS to step in is underscored by the absurd result that the split has created in a single case between Servotronics, Inc. (Servotronics) and Rolls Royce PLC (Rolls Royce). In that case, Rolls Royce manufactured an engine for a Boeing 787 Dreamliner. During testing at a Boeing facility in South Carolina, a piece of metal got stuck in an engine valve and damaged the aircraft. After settling Boeing’s lawsuit, Rolls Royce sought indemnification from Servotronics, the valve manufacturer, in an arbitration in the United Kingdom. Servotronics filed two applications under Section 1782, one in the Northern District of Illinois to obtain documents from Boeing and the second in the District of South Carolina to get testimony from Boeing employees. Ultimately, the Fourth Circuit held that the United Kingdom arbitration classified as a “foreign or international tribunal” and allowed the South Carolina depositions, while the Seventh Circuit ruled the opposite and turned down the request for Boeing’s documents in Illinois.[4] So, Servotronics has experienced first-hand the inequitable result, based solely on where the relevant evidence happened to be located.

However, if SCOTUS finds that foreign private arbitrations do not qualify under Section 1782, a related issue remains lurking in the background – when is a foreign arbitral panel purely private and when is it state-sponsored? If a panel’s adjudicatory authority derives from the parties’ agreement, does that make it by default a private panel? But isn’t private arbitration really a “product of government-conferred authority”?[5] Where do you draw the line?

For example, a number of courts have ruled that an arbitration under the Internal Chamber of Commerce falls outside the scope of Section 1782 because it is not subject to a judicial review.[6] In doing so, the courts have applied a so-called functional analysis articulated in the seminal case Intel Corp. v. Advanced Micro Devices, Inc.[7] Under this test, courts look at whether a foreign body (i) acts as a first-instance adjudicative decision maker, (ii) permits the gathering and submission of evidence, (iii) has the authority to determine liability and impose penalties, and (iv) issues decisions subject to judicial review. The SCOTUS could codify the Intel test as a tool for district courts to carry out the inherently fact-heavy analysis of whether a foreign arbitral panel is purely private or state-sponsored.

Finally, Justice Alito did not vote on the certiorari decision, leaving one to wonder whether he will recuse himself on the merits as well. If that were the case, SCOTUS could theoretically reach a 4-4 decision, upholding the Seventh Circuit’s refusal to provide the Boeing documents, but lacking a precedential value. Let’s hope that SCOTUS will take this opportunity to cut the knot and provide much needed guidance to the Circuit Courts and certainty to foreign litigants.

 

[1] Servotronics, Inc. v. Rolls-Royce PLC, No. 20-794, 2021 U.S. LEXIS 1592 (Mar. 22, 2021).

[2] See, e.g. In re Guo, 965 F.3d 96 (2d Cir. 2020); El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 F. App’x 31 (5th Cir. 2009); Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2020); Servotronics, Inc. v. Boeing Company, 954 F.3d 209 (4th Cir. 2020); In re Application to Obtain Discovery, 939 F.3d 710 (6th Cir. 2019).

[3] Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 685 F.3d 987 (11th Cir. 2012), vacated and superseded by, 747 F.3d 1262, 1270 (11th Cir. 2014); In re Rendon, No. 1:20-mc-21152-KMM, 2021 U.S. Dist. LEXIS 23284 (S.D. Fla. Feb. 8, 2021).

[4] Servotronics Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020); Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir., 2020).

[5] Servotronics, Inc. v. Boeing Company, 954 F.3d 209, 241 (4th Cir. 2020).

[6] See In re Rendon, No. 1:20-mc-21152-KMM, 2020 U.S. Dist. LEXIS 208078 (S.D. Fla. Nov. 5, 2020) (collecting cases).

[7] 542 U.S. 241, 247 (2004).