US Second Circuit Confirms That §1782 Discovery Is to Parties in Private International Commercial Arbitration

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On July 8, 2020, the US Court of Appeals for the Second Circuit rendered its decision in In Re Application and Petition of Hanwei Guo for an order to take Discovery for Use in a Foreign Proceeding Pursuant to 28 U.S.C. 1782 (No. 19-781) (“Hanwei’), confirming that discovery under 28 U.S.C. §1782 is unavailable in the Circuit to parties in private international commercial arbitrations.
 

The Hanwei decision also adds to the split among Federal Circuits on the issue, thus setting up the possibility that the Supreme Court will eventually weigh in.

Why Is This Important

The availability of “US-style discovery” in private international commercial arbitration may undermine a key attribute of arbitration — namely, dispute resolution that is often more efficient and cost-effective than domestic courts. Consequently, parties that seek in private international commercial arbitration the advantages of speed and cost over extensive discovery will welcome the Court’s confirmation. Others in private international commercial arbitrations requiring compelled witness testimony and third-party evidence will not.

The Second Circuit’s analysis also includes a test, described below, for determining when arbitration is a “private international commercial arbitration,” and thereby not eligible for §1782 discovery. This test should be kept in mind when seeking §1782 discovery in aid of a foreign arbitration.

How We Got Here

The Hanwei decision follows on two important prior decisions on §1782: the Second Circuit’s 1999 decision in National Broadcasting Co. v. Bear Stearns & Co. (NBC)[1] and the US Supreme Court’s 2004 decision in Intel Corp. v. Advanced Micro Devices, Inc. (Intel).[2]

The NBC case concerned a request under §1782 in aid of an International Chamber of Commerce (ICC) arbitration. There, the Second Circuit “concluded that: (1) the statutory text, namely the phrase “foreign or international tribunal,” was ambiguous as to the inclusion of private commercial arbitration; (2) the legislative and statutory history of the insertion of the phrase “foreign or international tribunal” into § 1782(a) demonstrated that the statute did not apply to private commercial arbitration; and (3) a contrary reading would impair the efficient and expeditious conduct of arbitrations.[3] Shortly after the NBC decision was published, the Fifth Circuit followed suit.[4]

In Intel, the Supreme Court settled certain aspects of §1782, but not directly the question of whether private commercial arbitrations were covered. It held that non-litigants may be “interested person[s],” that a proceeding need only be “within reasonable contemplation,” rather than “imminent”(expressly overruling Second Circuit precedent to the contrary), and that the statute contains no implicit “foreign-discoverability requirement.” One aspect indirectly approached the Second Circuit’s position in Hanwei on the availability of §1782 discovery. The Supreme Court held that the Directorate General-Competition of the Commission of the European Communities, as a “‘quasi-judicial agenc[y]’ with a proof-gathering function, qualified as a tribunal ‘to the extent that it acts as a first-instance decisionmaker,’ with its decisions reviewed by the Court of First Instance and the European Court of Justice (both of which were clearly ‘tribunals’).”[5]

Subsequently, in Hanwei, the Second Circuit was asked whether, in light of the Supreme Court’s Intel decision, its earlier decisions refusing to extend discovery under §1782 to private international commercial arbitrations were still good law. In a nutshell, the Second Circuit concluded that “nothing in the Supreme Court’s Intel decision alters our prior conclusion in NBC that §1782 does not extend to private international commercial arbitrations.” As the Second Circuit in Hanwei determined, “[t]he distinct question resolved by NBC—whether a private international arbitration tribunal qualifies as a “tribunal” under §1782—was not before the Intel Court.”[6]

Nonetheless, in the intervening years since Intel, cases in the Fourth Circuit[7] and the Sixth Circuit[8] have come to different conclusions on the availability of §1782 discovery in private international commercial arbitration. In its Hanwei decision, the Second Circuit noted that none of these cases “rested on the notion that Intel undermined NBC[9], and emphasized that “NBC remains binding law in this Circuit.”[10]

What Is a “Private International Commercial Arbitration”? The Second Circuit’s Test

Having confirmed that Second Circuit law prohibiting the extension of §1782 discovery to private international commercial arbitration continues to be good law, the Hanwei Court addressed the question of whether the arbitration forum in question – the China International Economic and Trade Arbitration Commission (CIETAC) – qualifies as a private international commercial arbitration (thereby falling outside the scope of §1782), or whether it should be considered, in the words of §1782, “a proceeding in a foreign or international tribunal.”

The Court began its analysis by noting that CIETAC was originally “created through state action,” but that it “arguably no longer qualifies as a ‘governmental or intergovernmental arbitral tribunal….”[11] The court “clarified” that the “‘foreign or international tribunal’ inquiry does not turn on the governmental or nongovernmental origins of the administrative entity in question.”[12] Instead, the Court set forth a three-pronged test: a functional test to determine whether the body in question possesses the functional attributes most commonly associated with private arbitration”[13]; consideration of the degree to which a state possesses the authority to intervene to alter the outcome of an arbitration after the panel has rendered a decision;[14] and finally, consideration of the “nature of the jurisdiction possessed by the panel.”[15]

With respect to the functional test, the Court noted that CIETAC: (1) functions “essentially independent of the Chinese government in the ‘administration of its arbitration cases’”[16]; (2) maintains confidentiality from all non-participants during and after arbitration[17]; (3) “offers parties a pool of arbitrators who are not selected by any entity other than CIETAC and who do not purport to act on behalf of, or have any mandatory affiliation with, the Chinese government.”[18]

With respect to the second prong, the Court concluded that the grounds for setting aside a CIETAC award under Chinese law “overlap extensively with the grounds upon which a party could petition a US Court to set aside an arbitration award.”[19] Further, it found that the provisions of Chinese law concerning the enforceability of arbitrations “merely control the enforceability of arbitrations in China in the same manner and to the same extent as the FAA in the United States [and] do not convert CIETAC arbitrations into state-sponsored endeavors.”[20] Finally, the Court concluded that the “fact that CIETAC panels may ultimately rely on the authority of China to enforce their decisions does not mean that CIETAC arbitration panels are public entities, any more than a corporation becomes a public entity because of its reliance on a given state’s commitment to enforce its contracts or uphold its charter.”[21]

Finally, with regard to the nature of the jurisdiction possessed by the arbitration panel, the Court first found that “the CIETAC panel derives its jurisdiction exclusively from the agreement of the parties and has no jurisdiction except by the parties’ consent.”[22] In an interesting footnote, the Court explained why a CIETAC arbitration was distinct from an arbitration under a bilateral investment treaty: “While an arbitral body under a bilateral investment treaty may be a ‘foreign or international tribunal,’ the arbitration here derives adjudicatory authority solely from the parties’ agreement, rather than the intervention or license of any government to adjudicate cases arising from certain varieties of foreign investment. Additionally, the dispute here is between two private parties, while arbitration under bilateral investment treaties is typically between a private party and a state.”[23]

Conclusions

With this decision, the Second Circuit has clarified, post-Intel, that private international commercial arbitration is not eligible for §1782 discovery. The Supreme Court may very well seek to resolve the Circuit split on this issue. In the meantime, parties to a private international commercial arbitration should be aware that the results of their §1782 discovery requests may vary depending on a Circuit’s particular approach. In the Second Circuit and in like-minded Circuits, where a party seeks to determine whether a US court might decide that a particular arbitral forum is, or is not, a “private international commercial arbitration,” the three-pronged test applied in Hanwei will serve as a useful tool.

[1] National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999).

[2] Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). (“Intel”)

[3] NBC, 163 F.3d at 188–91.

[4] Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999).

[5] Hanwei, p. 12.

[6] Id., pp. 12-13.

[7] Servotronics, Inc. v. Boeing Co., 954 F.3d 209, 210 (4th Cir. 2020).

[8] In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710 (6th Cir. 2019).

[9] Hanwei, p. 14.

[10] Id., p. 15.

[11] Id., p. 20.

[12] Id., p. 21.

[13] Id.

[14] Id., p. 22.

[15] Id., p. 24.

[16] Id., pp. 21-22.

[17] Id., p. 22.

[18] Id.

[19] Id.

[20] Id., p. 23.

[21] Id., p. 23-24.

[22] Id., p. 24.

[23] Id. at note 7.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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