On July 8, 2020, the United States Court of Appeals for the Second Circuit decided that federal courts may not order discovery for use in private international commercial arbitrations under 28 U.S.C. § 1782, affirming that a 1999 Second Circuit decision on this issue remains binding law in the Circuit.1 Section 1782 gives parties access to U.S.-style discovery for use in foreign proceedings. Lower courts in the Second Circuit had allowed discovery in aid of private international commercial arbitrations, relying on dicta in a 2004 Supreme Court decision that cast doubt on the Second Circuit's prior holding.2 The Second Circuit's decision cements a circuit split that may eventually result in the Supreme Court deciding whether § 1782 extends to private international commercial arbitrations.
Background
28 U.S.C. § 1782(a) allows federal district courts to order discovery for use in a proceeding in a "foreign or international tribunal" upon application by "any interested person." In 1999, the Second Circuit in NBC v. Bear Stearns & Co. found that the phrase "tribunal" did not include private arbitrations abroad and applied only to state- sponsored adjudicatory bodies. In 2004, the Supreme Court in Intel Corp. v. Advanced Micro Devices Inc. cited a scholarly article that suggested that "tribunal" may include private tribunals.3
Following Intel, lower courts, including district courts in the Second Circuit, have relied on this dicta to allow discovery under § 1782 for private international commercial arbitrations. Because the statute allows a § 1782 applicant to seek discovery from non-parties to an arbitration, companies headquartered in the Second Circuit were subject to U.S.-style discovery despite having no involvement in privately constituted international arbitrations. Concern about exposure to § 1782 discovery orders increased following the Second Circuit's 2019 decision in In re Valle Ruiz that district courts could order discovery of documents held abroad.4
On July 8, 2020, the Second Circuit affirmed that NBC remains good law and declined to extend § 1782 to discovery in aid of private international commercial arbitrations.5
In In Re Hanwei Guo, an investor in Chinese streaming service companies sought discovery in aid of an arbitration in China and constituted under the China International Economic and Trade Arbitration Commission ("CIETAC"). The applicant sought discovery from four New York-based investment banks related to their work as underwriters in the IPO of the entity which acquired the Chinese streaming companies, Tencent Music.6 The parties' arguments centered around the applicability of NBC after the Supreme Court's ruling in Intel and whether CIETAC was a private or state-sponsored body.
The Second Circuit rejected the argument that Intel had displaced its prior ruling in NBC v. Bear Stearns, finding that the question resolved by NBC—whether a private international arbitration tribunal qualifies as a 'tribunal' under § 1782—was not before the Intel Court.7
The Court then turned its attention to the status of CIETAC. It applied a functional test, stating that "the inquiry is whether the body in question possesses the functional attributes most commonly associated with private arbitration."8 The Second Circuit noted that, in determining whether a tribunal is private or state-sponsored, "[n]o single factor clearly distinguishes a private international commercial arbitration from a state-sponsored one," and that the Court considered a range of factors, including "the degree of state affiliation and functional independence possessed by the entity, as well as the degree to which the parties' contract controls the panel's jurisdiction."9
The Second Circuit considered the internal governance and operations of CIETAC and found that it operated "essentially independently of the Chinese government." The Court also noted that arbitrators were independent from the Chinese government.10 The Court then considered the extent to which the Chinese government could alter the results of a CIETAC arbitration. It found that "[b]ecause the provisions of Chinese law relied on by [the applicant] merely control the enforceability of arbitrations in China in almost the same manner and to the same extent as the FAA in the United States, they do not convert CIETAC arbitrations into state-sponsored endeavors."11 Finally, the Court considered the jurisdiction of an arbitration under CIETAC, and found that a CIETAC tribunal "has no jurisdiction except by the parties' consent."12 Taken together, the Second Circuit found that CIETAC, despite having a "degree of state affiliation" was a private arbitral body and that the lower court had correctly disallowed § 1782 discovery. Under the Second Circuit's analysis, arbitral tribunals operating under most major institutional rules are likely to be considered "private."
Comment
The Second Circuit's decision is likely to stem the tide of lower courts in the Second Circuit permitting § 1782 discovery in aid of private commercial arbitrations. The decision confirms the Circuit split between the Second and Fifth Circuits and the Fourth and Sixth Circuits and highlights the divergent approaches that courts have adopted to the issue. Unlike the functional approach adopted by the Second Circuit, the Sixth Circuit adopted a textual approach the relied on the "ordinary meaning" of "tribunal" and use of the word "tribunal" in legal writing. The Second Circuit's approach also differs markedly from that of the Fourth Circuit, which found that the applicability of the English Arbitration Act to a U.K.-seated arbitration was sufficient for the latter to qualify as a state-sponsored tribunal for the purposes of § 1782.
In Re Hanwei Guo forecloses the possibility of obtaining § 1782 discovery in the Second Circuit, but the position remains unclear in most other circuits. Litigants involved in international arbitrations should carefully consider where to bring applications for discovery, taking into consideration where relevant custodians are located, and whether the relevant jurisdiction allows § 1782 discovery in aid of arbitration.
1 Nat'l Broad. Co., Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184, 190 (2d Cir. 1999) (holding that § 1782 only applies to "governmental or intergovernmental arbitral tribunals and conventional courts and other state-sponsored adjudicatory bodies").
2 See In re Application of the Children's Inv. Fund Found. (UK), 363 F. Supp. 3d 361, 369 (S.D.N.Y. 2019) (finding that the Supreme Court's dicta in Intel abrogated NBC's central holding), 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).
3 542 U.S. at 25 (quoting Hans Smit, International Litigation Under the United States Code, 65 Colum. L. Rev. 1015, 1026 n.71 (1965).
4 In re del Valle Ruiz, 939 F.3d 520 (2d Cir. 2019).
5 In Re Application of Hanwei Guo for an Order to Take Discovery for Use in a Foreign Proceeding Pursuant to 28 U.S.C. § 1782 (2d Cir. Case No. 19-781, July 8, 2020) ("In Re Hanwei Guo").
6 In Re Hanwei Guo, at 4-5.
7 In Re Hanwei Guo, at 12-13.
8 In Re Hanwei Guo, at 21.
9 In Re Hanwei Guo, at 21.
10 In Re Hanwei Guo, at 22.
11 In Re Hanwei Guo, at 23.
12 In Re Hanwei Guo, at n.7 24.
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