The Fourth Circuit Court of Appeals Joins the Sixth Circuit Court of Appeals in Approving U.S. Discovery in Aid of Foreign Private Commercial Arbitration

Despite the court closures caused by the coronavirus pandemic, the federal judiciary continues to issue important rulings.

On March 30, 2020, the U.S. Court of Appeals for the Fourth Circuit held that a foreign arbitral panel is a “foreign or international tribunal” under 28 U.S.C. §1782 (Assistance to foreign and international tribunals and to litigants before such tribunals), such that a U.S. district court has authority to assist, in its discretion, in obtaining documents or information from a U.S. person for use in such foreign private commercial arbitration. Servotronics, Inc. v. The Boeing Co., No. 18-2454 (4th Cir. 2020). The Fourth Circuit decision is of great importance to the international arbitration practitioners as well as U.S. persons who now may find themselves more likely to be subjects of discovery requests in connection with foreign private commercial arbitrations. The Fourth Circuit joined its sister Sixth Circuit, which also held in late 2019 that 28 U.S.C. §1782 applies to foreign private commercial arbitrations. See In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710 (6th Cir. 2019). Pointing to these recent decisions, litigants seeking discovery from U.S. persons in connection with foreign private commercial arbitrations will argue that a pair of 1999 decisions from the Second Circuit and the Fifth Circuit going the other way have been superseded by a 2004 Supreme Court decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). Because of this circuit split, litigants seeking discovery from U.S. persons will try to be creative in finding the “right” forum to file their applications for documents or information. The Fourth Circuit’s decision provides an important reminder, too, that Section 1782’s reach is constrained by the discretion of district courts, which act as surrogates for tribunals in deciding whether to grant discovery for use in a foreign proceeding.

The Fourth Circuit decision arose from a UK private commercial arbitration between Servotronics and Rolls-Royce. The latter sought indemnity from the former for a damaged engine. In connection with that arbitration, Servotronics filed an application in the United States District Court for the District of South Carolina, seeking testimony from three South Carolina residents involved with the damaged engine. The district court denied Servotronics’ application, relying on National Broadcasting Company, Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184 (2d Cir. 1999), and Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999), both of which held that private arbitral bodies are not “tribunals” as used in Section 1782.

The Fourth Circuit reversed and remanded. The Court of Appeals pointed to the legislative history of Section 1782, as analyzed by the Supreme Court in Intel. Specifically, the Court of Appeals pointed to the fact that in 1964 Congress deleted from the former version of the statute the words “in any judicial proceeding in any court in a foreign country” and replaced them with the phrase “in a proceeding in a foreign or international tribunal.” Further, the court pointed to a statement by a reporter to the Rules Commission (also cited in Intel), indicating that the term “tribunal” was meant to include, among other forums, “arbitral tribunals and quasi-judicial agencies as well as conventional civil, commercial, criminal, and administrative courts.”

The Fourth Circuit also dismissed argument that the term “foreign tribunal” refers to “an entity that exercise[s] government-conferred authority,” and that private arbitral tribunals do not count because they derive their authority from the parties’ agreement, not from the government. The Fourth Circuit pointed out that with the Federal Arbitration Act, Congress elevated arbitration as a favored alternative to litigation when the parties agree to arbitrate and undertook to regulate the arbitral process and confer supervisory authority on U.S. district courts. The Fourth Circuit also pointed out that the UK Arbitration Act provides even more governmental regulation and oversight than does the Federal Arbitration Act. Thus, the Court of Appeals concluded that even if the court were to apply the more restrictive definition of “foreign or international tribunal” adopted by Bear Stearns and Biedermann, the court would conclude that “the UK arbitral panel charged with resolving the dispute between Servotronics and Rolls-Royce meets that definition.”

The Fourth Circuit also rejected the assertion that the application of Section 1782 to foreign private commercial arbitrations will impermissibly broaden the scope of the arbitration and make available the full discovery process under the Federal Rules of Civil Procedure. The Court of Appeals reminded that Section 1782 is not designed to authorize full discovery in connection with a foreign arbitration; it is much more limited. The statute “authorizes a U.S. district court to function in the stead of a foreign tribunal and, on behalf of that tribunal, to take statements and receive testimony and documents or other materials intended ‘for use’ in the proceeding before the tribunal.” (emphasis added)

The Fourth Circuit decision (and the 2019 Sixth Circuit decision on which it relied) provides a very potent tool for parties in foreign private commercial arbitrations to seek documents and testimony from U.S. persons for use in those arbitrations. Given that arbitration is by far the most selected form of dispute resolution in international contracts, and given the importance of the U.S. to international commerce, the rise in applications for documents and testimony from U.S. persons in aid of foreign private commercial arbitrations is expected. Applicants should be mindful, of course, that the district courts have discretion in whether to grant or deny applications and that Section 1782 is not equivalent to the broad discovery provisions in the Federal Rules of Civil Procedure.