Posternak Blankstein & Lund LLP is now Arent Fox. Read the press release

Fourth Circuit Court Allows Section 1782 Fact-Finding in a Private International Arbitration

Last week, in Servotronics, Inc. v. Boeing Co., the Fourth Circuit became the latest United States Court of Appeals to allow Section 1782 discovery for use in private international arbitrations.

Section 1782[1] is a powerful procedural weapon in anyone’s foreign dispute arsenal. It allows any interested party to ask a US court to order fact-finding against a person or entity located in the US for use in a proceeding in an international tribunal. 

The Servotronics case involved a dispute over who was responsible for a Boeing 787 Dreamliner bursting into flames during a preflight test. The fire started in the plane’s tailpipe when metal inside an engine valve dislodged and disrupted fuel flow. Servotronics made the valve, and Rolls Royce assembled the hydro-mechanical unit housing the valve. Both companies blamed the other for the fire in a private arbitration in England. To help prove its case before the English arbitrators, Servotronics filed a Section 1782 application with a South Carolina District Court, asking it to issue subpoenas to interrogate three current and former Boeing employees that troubleshot and investigated the fire. Boeing convinced the District Court not to issue the subpoenas by arguing Section 1782 did not apply to private international arbitrations. Yet on appeal, the Fourth Circuit reversed the District Court’s decision, holding that section 1782 does apply.

Servotronics is the latest in a Trend of US Cases Applying Section 1782 for Discovery for use Private International Arbitrations

The Servotronics case illustrates a recent trend of US courts giving the green light for discovery for use in private arbitrations, and reversing older case law. In the 1990s, the Second and Fifth Circuits held that private arbitrations were not “tribunals” within the meaning of section 1782, reasoning that the statute was only meant to aid foreign governmental entities, and not private parties arguing before private foreign arbitrators.[2] However, in 2004, the Supreme Court issued a landmark decision in Intel Corporation v. Advanced Micro Devices, which broadened the reach of Section 1782 discovery. The Supreme Court noted that the line between what constituted a tribunal under Section 1782 was “unbounded by categorical rules” and approvingly quoted an article by Professor Hans Smit[3] clarifying that “the term ‘tribunal’ includes… arbitral tribunals.” [4]

Following Intel, many lower courts took the hint, and revisited the Second and Fifth Circuit decisions. In 2012, the Eleventh Circuit opined that foreign private arbitrations could be “tribunals” depending on the “characteristics of the arbitral body at issue.”[5]  Between 2016 and 2019, two different District Courts in the Second Circuit acknowledged that Intel abrogated its Circuit’s prior decision on the issue, and held that private arbitrations are tribunals under Section 1782.[6] By late 2019, the Sixth Circuit went a step further and made a bright-line rule that privately contracted-for commercial arbitrations are always “tribunals.”[7] The Fourth Circuit now agrees with this bright-line rule.

The Benefits of Obtaining Section 1782 Discovery

Section 1782 can aid the fact-finding in a wide variety of ways. It can order preliminary fact-finding and strengthen a case even before an arbitration is filed, it can open up another front in a cross-border dispute, or be used to take advantage of broader discovery procedures in the United States. And Section 1782 discovery is not simply limited to documents located in the United States. District Courts can apply Section 1782 to order discovery overseas, as long as the relevant United States entity against which discovery is sought controls the overseas documents.

Section 1782 can augment the fact-finding of many foreign arbitrations. Courts consider numerous factors when evaluating whether to approve a request. If additional evidence is needed in the midst of a foreign arbitration, clients should contact qualified US counsel to evaluate strategic costs and benefits of filing a Section 1782 application.

[1] 28 United States Code § 1782.
[2] Natl. Broad. Co., Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184 (2d Cir. 1999); Republic of Kazakhstan v. Biedermann Intern., 168 F.3d 880 (5th Cir. 1999). [3] Professor Smit has been described by US Courts as “a chief architect” of section 1782. Euromepa S.A. v. R. Esmerian, Inc., 51 F.3d 1095, 1099 (2d Cir. 1995).
[4] Intel Corp. v. Adv. Micro Devices, Inc., 542 U.S. 241 (2004).
[5] Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 685 F.3d 987 (11th Cir. 2012), superseded on other grounds, 747 F.3d 1262 (11th Cir. 2014).
[6] In re Ex Parte Application of Kleimar N.V., 220 F. Supp. 3d 517, 521–22 (S.D.N.Y. 2016); In re Children's Inv. Fund Found. (UK), 363 F. Supp. 3d 361, 369 (S.D.N.Y. 2019).
[7] In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710, 726 (6th Cir. 2019).

Contacts

Continue Reading