US discovery in aid of international commercial arbitration after Valle Ruiz and Abdul Latif Jameel
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Preeti G Bhagnani
White & Case, New York
pbhagnani@whitecase.com
Eric Lenier Ives
White & Case, New York
eric.lenier.ives@whitecase.com
Historically a minor procedural statute, requests for discovery under 28 United States Code section 1782 have exploded[1] in the last decade, following the US Supreme Court’s 2004 decision in Intel Corp. v. Advanced Micro Devices, Inc. The Supreme Court in Intel held that district courts have broad discretion under section 1782 to order discovery for use in proceedings before a foreign or international ‘tribunal’ subject to four guiding factors.[2]
The application of this broad discretion has led to varied results. District and appellate courts have differed in their rulings as to the contours of ‘for use’ under the statute,[3] the types of proceedings to which the statute applies,[4] and the extraterritorial reach of section 1782 discovery orders.[5] In 2019, the Sixth Circuit created a Circuit split as to whether discovery under section 1782 is available for international commercial arbitrations, and the Second Circuit redefined the extraterritorial reach of section 1782 discovery orders.
This article considers the practical implications of these decisions for parties who have some connection to the Sixth or Second Circuits. It also explores some of the paradoxes arising from the availability of ‘US-style discovery’ under section 1782 for use in private international arbitrations.
Recent appellate decisions and practical implications
In Abdul Latif Jameel Transp. Co. v. FedEx Corp.,[6] the Sixth Circuit decided that discovery under section 1782 is available with respect to proceedings before privately constituted international arbitral tribunals. The Court held that private international tribunals qualify as ‘tribunal[s]’ under the statute, and an interested petitioner may request discovery in the US District Court where the target of the discovery request resides or is found for use in such proceedings.[7]
The discovery petition at issue in Abdul Latif arose out of an arbitration between FedEx International and Abdul Latif Jameel Transportation Company (ALJ) under the Dubai International Financial Centre-London Court of International Arbitration (DIFC-LCIA) Rules in Dubai. ALJ alleged that FedEx International’s parent company, FedEx Corporation, was involved in the underlying contractual dispute and petitioned for discovery against FedEx in the Western District of Tennessee, FedEx Corporation’s headquarters. The Sixth Circuit examined the definition of ‘tribunal’ when the statute was drafted, and concluded the term ‘tribunal’ ‘encompass[es] privately contracted-for arbitral bodies with the power to bind the contracting parties’.[8]
In doing so, the Sixth Circuit parted ways with the Fifth and Second Circuits, both of which had concluded (in decisions pre-dating Intel) that ‘tribunal’ includes only ‘governmental or intergovernmental arbitral tribunals and conventional courts and other state-sponsored adjudicatory bodies’.[9] The decision creates a Circuit split, setting the stage for the Supreme Court to resolve conflicting lower decisions.
The impact of Abdul Latif on parties involved in commercial arbitrations is straightforward but significant. Persons who reside or are found in the Sixth Circuit – such as Michigan, Ohio, Kentucky, and Tennessee – may now be subject to discovery, even where the dispute is a private commercial arbitration and where they are non-parties to the underlying proceeding. Sixth Circuit residents who are involved in international arbitrations against non-residents or foreign entities may find themselves at a significant disadvantage as they may be subject to broad, lengthy, and costly ‘US-style’ discovery, while their opposing parties are not.
Shortly after the Abdul Latif decision, the Second Circuit decided In re del Valle Ruiz,[10] another decision that alters the section 1782 landscape. The Second Circuit in In re del Valle Ruiz affirmed an order of discovery under section 1782 for use in several international proceedings (a proceeding before the Court of Justice of the European Union, an international arbitration against the Spanish government under the Mexico-Spain bilateral investment treaty, and a Spanish criminal proceeding).[11]
The targets of the discovery requests were the Spanish bank Santander and its New York-based affiliate, Santander Investment Securities (SIS). Santander had retained UBS and Citibank, both banks with headquarters in the Second Circuit, to advise on a private acquisition of another Spanish bank. Before their private sale could be completed, the Spanish government forced the sale of Santander’s acquisition target, preventing the original transaction from moving forward. Having allegedly suffered significant financial losses, a group of Mexican investors and US investment management firms sought discovery materials from Santander relating to the forced sale in the Southern District of New York.
On the issue of whether the New York-based affiliate, SIS, could be required to produce documents that were stored outside the US, SIS argued that the statute had a per se bar on extraterritorial application.[12] The Second Circuit rejected this argument and held that a district court may order the production of documents located outside the United States so long as that evidence is under the ‘possession, custody, or control’ of the party subject to the district court’s jurisdiction.[13] In reaching this decision, the Second Circuit departed from the reasoning of lower courts in the Southern District[14] as well as Seventh Circuit dicta[15] questioning the appropriateness of extraterritorial discovery. The practical effect of the decision is that documents held on offshore servers could be covered by a section 1782 discovery order.[16]
As to discovery of materials controlled by Santander, the district court had found that it lacked jurisdiction to grant such discovery because the materials sought from Santander were originally intended for use in the private acquisition rather than the subsequent forced sale. The Second Circuit affirmed, holding ‘the respondent’s having purposefully availed itself of the forum must be the primary or proximate reason that the evidence sought is available at all’.[17] The Court found that Santander’s activity in New York did not meet the jurisdictional threshold: Santander’s retention of Citibank and UBS for due diligence in a private transaction was the ‘but for’ cause of the availability of the materials, but not the proximate cause. The court’s decision implies that if Santander had retained New York banks to advise on the forced sale rather than the private acquisition, Santander could have been ordered to produce evidence (including evidence located in Spain) within its control.[18]
Conceptual conflicts between section 1782 and arbitration
Beyond the inconsistencies in the case law and attendant practical uncertainties, the availability of section 1782 discovery with respect to international arbitration creates some unexpected results. Applying section 1782 in aid of foreign commercial arbitration proceedings is in tension with the privity that underlies arbitration. As a creature of contract, the arbitral tribunal’s jurisdiction extends only to the parties bound by the arbitration agreement, yet section 1782 exposes non-parties to discovery obligations with respect to arbitrations under privately-negotiated agreements. Moreover, non-parties potentially face greater exposure to discovery obligations under section 1782. Under current law, US courts are more willing to call on non-parties to produce documents because the need for assistance is more apparent.[19]
Another paradoxical effect of expanding section 1782 discovery to private arbitration is the resulting asymmetry between domestic and foreign arbitrations. Under the Federal Arbitration Act (FAA), an arbitrator in a domestic arbitration has the power to compel a party or non-party to bring documents and testify only at a hearing.[20] The majority of US appellate courts that have considered third-party discovery under the FAA have concluded that the FAA does not give an arbitrator the ability to compel depositions of non-parties.[21] Under section 1782, however, a party could avail of the full scope of ‘US-style’ discovery in accordance with the Federal Rules of Civil Procedure (including depositions by non-parties).
The expansive scope of section 1782 discovery also tends to upend parties’ expectations. In the context of private international arbitration, parties tend to expect limited document production and often incorporate the IBA Guidelines on the Taking of Evidence (IBA Rules), which are guided by the principle that ‘[e]xpansive American- or English-style discovery is generally inappropriate in international arbitration’.[22]
The Sixth Circuit noted this concern in Abdul Latif stating, ‘[t]he district court may well conclude, in some cases, that discovery of a scope appropriate for civil litigation would be ‘unduly intrusive or burdensome’ in the context of arbitration’ and ‘the district court may withhold or shape discovery assistance accordingly’.[23] Courts are guided in their discretion by the aims of section 1782 as well as the Intel factors. In exercising their discretion, district courts must consider that one of the aims of section 1782 is to provide ‘efficient assistance’ and ‘unduly intrusive or burdensome’ discovery should be stricken.[24] District courts have considered the nature of private arbitral proceedings as warranting caution before issuing a section 1782 order.[25]
Parties could attempt to opt out of section 1782 discovery ex ante in their arbitration clause or a separate agreement, but courts have been inconsistent in their treatment of parties’ contractual agreements. The incorporation of arbitral institutional rules in parties’ arbitration agreements, for example, has led to mixed results. Some courts have found that the incorporation of arbitral rules and standards such as the IBA Rules weighs against granting section 1782 discovery, and some consider a statement from the arbitral institution regarding its receptivity to discovery persuasive in their inquiry,[26] while others seemingly do not consider the effect of institutional rules in their analysis.[27]
The expansion of section 1782 discovery is also arguably in tension with the autonomy of the tribunal. Among the four ‘Intel factors,’ district courts must consider ‘the nature of the foreign tribunal, the character of the proceedings underway, and the receptivity of the foreign government or the court or agency abroad to US federal-court jurisdictional assistance’.[28] That the foreign or international tribunal is open to receiving evidence pursuant to section 1782 ‘generally weighs in favor of granting such petitions’.[29] In order to provide ‘efficient assistance’ under section 1782, district courts have reason to narrowly tailor their section 1782 discovery orders. Narrow tailoring avoids ‘inefficiency and waste’, and is consistent with the purpose of section 1782.[30] Where district courts order discovery of information that the tribunal has not expressed interest in, they risk ‘undermin[ing] the statute’s objective’.[31]
However, while the statutory aims of section 1782 and the Intel factors suggest that the views of the arbitral tribunal are an important consideration, the affirmative consent of the tribunal is neither required nor dispositive. Where the arbitral tribunal has already issued a discovery order and a conflicting section 1782 discovery is sought, the arbitral tribunal may object to discovery in the US, but objection – though persuasive[32] – is not dispositive. Even in Intel, the explicit rejection of US discovery assistance by the foreign tribunal was not a bar to section 1782 discovery.[33] Of course, while a US court may issue discovery, the tribunal retains control in that it has the power to determine whether to admit the evidence and what weight to accord it.[34]
Conclusion
There appears to be no end in sight for the expansion and complications of section 1782 discovery. The modern trend for section 1782 discovery has been a shift towards granting district courts broad discretion in ordering discovery. Applied to private arbitration, this trend undercuts some of the core advantages of international arbitration, including party control, certainty and relatively limited document disclosure. To mitigate the risks posed by section 1782, parties drafting arbitration agreements may do well to explicitly outline the scope of discovery in their arbitration agreement. Foreign entities with connections to the US need to be aware of the potential for discovery exposure in relation to potential proceedings, including private arbitrations.
[1] A Lexis Advance Search of ‘28 U.S.C. 1782’ across the federal courts yields 894 cases between 2009 and 2019 compared with 199 cases between 1999 and 2009. See alsoCaroline Simson, Attys Look to Justices for Clarity on Foreign Discovery Law, Law360, (Aug. 16, 2019) (quoting Quinn Emanuel Urquhart & Sullivan LLP’s Lucas Bento stating, ‘there’s been a 400 percent increase in the last 10 years’ and referring to section 1782 as the ‘weapon of choice’ for international litigants.).
[2] Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 246-47, 264-65 (2004) (stating four factors to guide district courts, including (1) whether ‘the person from whom discovery is sought is a participant in the foreign proceeding,’ in which case ‘the need for section 1782(a) aid generally is not as apparent’; (2) ‘the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance’; (3) ‘whether the section 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States’; and (4) whether the request is ‘unduly intrusive or burdensome.’).
[3] Andrew Brickfield, Note,Use or Abuse of section 1782 Discovery in Less-Developed Legal Systems, 57 Colum. J. Transnat’l L. 357, 379-92, 2019.
[4] Arthur W. Rovine, Section 1782 and International Arbitral Tribunals: Some Key Considerations in Key Cases, 23 Am. Rev. Int’l Arb. 461, 2012.
[5] Tyler B. Robinson, The Extraterritorial Reach of 28 U.S.C. section 1782 in Aid of Foreign and International Litigation and Arbitration,22 Am. Rev. Int’l Arb. 135, 2011.
[6] Abdul Latif Jameel Transp. Co. v. FedEx Corp. (In re Application to Obtain Discovery for Use in Foreign Proceedings), 939 F.3d 710 (6th Cir. 2019).
[7] Ibid. at 714.
[8] Ibid.at 722.
[9] Nat’l Broadcasting Co., Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184, 190 (2d Cir. 1999); Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880, 882 (5th Cir. 1999); see also El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 F. App’x. 31, 34 (5th Cir. 2009).
[10] In re del Valle Ruiz, 939 F.3d 520 (2d Cir. 2019).
[11] Ibid. at 524, 525.
[12] Valle Ruiz, 939 F.3d at 531.
[13] Ibid. at 533.
[14] See In re Kreke Immobilien KG, 2013 U.S. Dist. LEXIS 160283, at *11 (S.D.N.Y. Nov. 8, 2013), In re Godfrey, 526 F. Supp. 2d 417, 423 (S.D.N.Y. 2007), and In re Microsoft Corp., 428 F. Supp. 2d 188, 194 n.5 (S.D.N.Y. 2006).
[15] Kestrel Coal PTY. LTD. v. Joy Glob., Inc., 362 F.3d 401, 404 (7th Cir. 2004).
[16] The Second Circuit specifically notes that a district court ‘should[] consider the location of documents and other evidence when deciding whether to exercise its discretion to authorize such discovery’ but that location is ‘no bar’ to ordering discovery. Valle Ruiz, 939 F.3d at 533.
[17] Valle Ruiz, 939 F.3d at 530.
[18] This jurisdictional analysis is particularly important in light of the divergence between lower courts in the Second Circuit on the issue of section 1782’s availability in private international arbitration. While the Second Circuit has not revisited its pre-Intel ruling in National Broadcasting Co. Inc. v. Bear Stearns & Co., Inc., where it found private arbitration tribunals outside the scope of section 1782, several lower courts within the Second Circuit have abandoned NBC, finding that the Supreme Court’s dicta in Intel abrogated NBC’s central holding. See In re Application of the Children’s Inv. Fund Found. (UK), 363 F. Supp. 3d 361, 369 (S.D.N.Y. 2019), In re Kleimar N.V., 220 F. Supp. 3d 517, 521 (S.D.N.Y. 2016), and In re Chevron Corp., 2010 U.S. Dist. LEXIS 47034, *18 (S.D.N.Y. May 10, 2010). Taken together with Valle Ruiz’s extraterritoriality holding, so long as the ‘discovery material sought proximately resulted from the respondent’s forum contacts,’ Second Circuit district courts are able to order extraterritorial discovery in aid of private international arbitration. Valle Ruiz 939 F.3d at 530.
[19] Intel, 542 U.S. at 264 (‘[W]hen the person from whom discovery is sought is a participant in the foreign proceeding . . . the need for section 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad. A foreign tribunal has jurisdiction over those appearing before it, and can itself order them to produce evidence[.]’); Accent Delight Int’l v. Sotheby’s, Inc. (In re Accent Delight Int’l), 2019 U.S. App. LEXIS 33785, at *7 (2d Cir. Nov. 13, 2019) (‘The first Intel factor requires only that a petitioner has sufficient need for section 1782 aid. If the target of the section 1782(a) application is a party to the foreign proceeding, that need is diminished.’).
[20] Federal Arbitration Act 9 U.S.C. section 7 (providing that an the arbitral tribunal ‘may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case.’).
[21] CVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 706 (9th Cir. 2017) (‘The text of section 7 grants an arbitrator no freestanding power to order third parties to produce documents other than in the context of a hearing.’); Life Receivables Tr. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 215-16 (2d Cir. 2008) (collecting cases and noting an ‘emerging rule’.); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3d Cir. 2004); but see cf. In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir. 2000) and Am. Fed’n of Tel. & Radio Artists v. WJBK-TV, 164 F.3d 1004, 1009 (6th Cir. 1999).
[22] 1999 IBA Working Party & 2010 IBA Rules of Evidence Review Subcommittee, ‘Commentary on the revised text of the 2010 IBA Rules on the Taking of Evidence in International Arbitration’, International Bar Association, 2010, /MediaHandler?id=DD240932-0E08-40D4-9866-309A635487C0
[23] Abdul Latif, 939 F.3d at 730. District courts, however, appear less likely to strike discovery requests rather than modify them or direct the parties to negotiate to ‘ease [the respondent’s] burden.’ In re Accent Delight Int’l, 2019 U.S. App. LEXIS 33785, at *10.
[24] Intel, 542 U.S. at 265 (noting also that section 1782 aims ‘to assist foreign tribunals in obtaining relevant information that the tribunals may find useful.’).
[25] In re Caratube Int’l Oil Co., LLP, 730 F. Supp. 2d at 105-06 (denying petition because ‘parties to an arbitration are free to set the procedural rules for arbitrators to follow’ and the court was reluctant ‘to interfere with the parties’ bargained-for expectations’) (internal quotations omitted).
[26] In re Caratube Int’l Oil Co., LLP, 730 F. Supp. 2d 101, 108 (D.D.C. 2010) (finding that the parties’ incorporation of the ICSID Rules and International Bar Association’s Rules on the Taking of Evidence in International Commercial Arbitration weighed against granting a party’s unilateral petition for section 1782 discovery); see also In re Babcock Borsig AG, 583 F. Supp. 2d 233, 241 (D. Mass. 2008) (denying a section 1782 application where ‘neither party has presented authoritative proof regarding the receptivity of the ICC to the discovery materials requested’.).
[27] In re Application of the Children’s Inv. Fund Found. (UK), 363 F. Supp. 3d 361, 369 (S.D.N.Y. 2019) (not addressing the LCIA Arbitration Rules granting the tribunal the additional power to order document disclosure, Art. 22.1(iv) and (v)) andIn re Kleimar N.V., 220 F. Supp. 3d 517, 521 (S.D.N.Y. 2016) (not addressing the LMAA Rules bar on formal disclosure and limiting document disclosure to the parties).
[28] Intel, 542 U.S. at 264, 265.
[29] In re Caratube Int’l Oil, 730 F. Supp. 2d at 105-06;In re LG Elecs. Deutschland GmbH, 2012 U.S. Dist. LEXIS 70570, at *5 (S.D. Cal. May 21, 2012) (‘LG has made a sufficient showing that the German and Japanese courts would be receptive to the introduction of evidence obtained pursuant to section 1782. Consequently, this Court views this factor as favoring the Applicant.’);In re OOO Promnefstroy, 2009 U.S. Dist. LEXIS 98610, at *19-20 (S.D.N.Y. Oct. 15, 2009) (‘Because the Court has not been presented with any evidence that the Dutch legal system rejects section 1782 type assistance, the second factor is neutral or slightly favors [the Petitioner].’).
[30] See Committee on International Commercial Disputes, 28 U.S.C. section 1782 As A Means Of Obtaining Discovery In Aid Of International Commercial Arbitration—Applicability And Best Practices, New York City Bar Association, Feb. 29, 2008 at 31; see also Deborah C. Sun, Note, Intel Corp. v. Advanced Micro Devices, Inc.: Putting ‘Foreign’ Back into the Foreign Discovery Statute, 39 U.C. Davis L. Rev. 279, 293 (2005).
[31] In re Babcock Borsig AG, 583 F. Supp. 2d at 241.
[32] In re Caratube Int’l Oil Co., LLP, 730 F. Supp. 2d at 105-06 (finding that a foreign tribunal’s willingness to accept evidence generally weighs in favor of granting such petitions).
[33] Intel, 542 U.S. at 265-66.
[34] In re Caratube Int’l Oil Co., LLP, 730 F. Supp. 2d at 106 (ICSID arbitral tribunal had reserved judgment on admitting documents obtained via section 1782).
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