Section 1782 Applications in International Arbitration and Award Enforcement Proceedings: What Practitioners Need To Know
This article examines the instances in which §1782 can be used in support of both international arbitrations and foreign award enforcement proceedings, as well as its extraterritorial reach.
November 22, 2019 at 02:40 PM
9 minute read
Title 28 U.S.C. §1782 can be a powerful tool for obtaining evidence to support international arbitrations and award enforcement proceedings outside the United States. This article examines the instances in which §1782 can be used in support of both international arbitrations and foreign award enforcement proceedings, as well as its extraterritorial reach.
Background
Section 1782 allows federal courts to order persons or entities within their jurisdiction to provide documentary and/or testimonial evidence to be used in non-U.S. proceedings before a "foreign or international tribunal." 28 U.S.C. §1782(a) (2019).
While versions of §1782 have existed for over 150 years, the statute's use has increased dramatically since the U.S. Supreme Court's 2004 decision in Intel v. Advanced Micro Devices, 542 U.S. 241 (2004). This usage has included international arbitrations and award enforcement proceedings.
Section 1782 applications can be particularly beneficial in international arbitrations seated outside the United States, because: (1) arbitral tribunals seated outside the United States generally lack the ability to issue subpoenas or to compel third parties to provide evidence; and (2) evidentiary gathering procedures in international arbitration can be more limited than in most common law court systems.
Section 1782 applications can be equally useful in foreign award enforcement proceedings to help identify an award debtor's assets and to establish where enforcement proceedings should be commenced.
Accordingly, §1782 is useful tool, but it cannot be deployed in every instance.
Section 1782 Applications in International Arbitrations
Section 1782 can only be used in support of an international arbitration if the arbitral tribunal qualifies as "foreign tribunal" for §1782's purposes. This in turn depends upon the type of international arbitration at issue and the court in which the §1782 application is brought.
Investor-State Arbitrations. Federal courts agree that investment treaty arbitrations satisfy §1782's foreign tribunal requirement, because "arbitrations pursuant to … Investment Treaties are not merely private arrangements," but are arbitrations that are "sanctioned by their governments." Islamic Republic of Pakistan v. Arnold & Porter Kaye Scholer, No. MC 18-103 (RMC), 2019 WL 1559433, at *7 (D.D.C. April 10, 2019); see Nat'l Broad. Co. v. Bear Stearns & Co., 165 F.3d 184, 190 (2d. Cir. 1999) (explaining that §1782 was meant to apply to governmental and intergovernmental tribunals); Republic of Kazakhstan v. Biedermann Int'l, 168 F.3d 880, 882 (5th Cir. 1999) (concluding same); see also In re Mesa Power Group, 878 F. Supp. 2d 1296, 1307 (S.D. Fla. 2012) (allowing §1782 application in support of a NAFTA arbitration).
International Commercial Arbitrations. Circuits have split on whether §1782 can be used to support private international commercial arbitrations, because courts have disagreed whether private commercial international arbitral tribunals qualify as "foreign tribunals" for §1782's purposes.
The Second and Fifth Circuits have both held that §1782 applications cannot be brought in support of private international commercial arbitrations. See Nat'l Broad. Co., 165 F.3d at 191 (denying §1782 application brought in support of an ICC arbitration); Republic of Kazakhstan, 168 F.3d at 883 (rejecting §1782 application brought in support of a SCC arbitration). Both courts have held that §1782's foreign tribunal requirement does not extend to private arbitral tribunals established by contract. See Nat'l Broad Co., 165 F.3d at 191; Republic of Kazakhstan, 168 F.3d at 883.
The Sixth Circuit recently reached the opposite conclusion, however, in In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710 (6th Cir. 2019) and held that §1782 can be employed in support of private commercial arbitrations. The Sixth Circuit concluded that there is "no reason to doubt that the word 'tribunal' includes private commercial arbitral panels established pursuant to contract and having the authority to issue decisions that bind the parties." Id. at 723.
The Eleventh Circuit previously held that §1782 applied to private international commercial arbitrations, see In re Consorcio Ecuatoriano de Telecomunicaciones S.A., 685 F.3d 987, 990 (11th Cir. 2012), but later vacated and superseded that opinion with one relying on a contemplated court proceeding rather than a pending arbitration to support the §1782 application. Id., 747 F.3d 1262, 1269-70 (11th Cir. 2014). The status in the Eleventh Circuit therefore remains unsettled.
District courts around the country have also reached different conclusions. Many have allowed §1782 applications in support of private arbitrations. See, e.g., In re Owl Shipping, No. CIV.A. 14-5655 AET, 2014 WL 5320192, at *2 (D.N.J. Oct. 17, 2014); In re Babcock Borsig, 583 F. Supp. 2d 233, 238-40 (D. Mass. 2008); Comision Ejecutiva, Hidroelectrica del Rio Lempa v. Nejapa Power Co., 2008 WL 4809035, at *1 (D. Del. Oct. 14, 2008); In re Hallmark Capital, 534 F. Supp. 2d 951, 952 (D. Minn. 2007); In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1222 (N.D. Ga. 2006); In re Pinchuk, No. 13-22857-MC-GOODMAN, 2013 U.S. Dist. LEXIS 147864, at *5-6 (S.D. Fla. Sept. 20, 2013).
Others have held that private international arbitrations do not satisfy §1782's foreign tribunal requirement. See, e.g., In re Servotronics, No. 2:18-MC-00364-DCN, 2018 WL 5810109, at *2 (D.S.C. Nov. 6, 2018); Norfolk Southern v. Gen. Sec. Ins. Co., 626 F. Supp. 2d 882, 884-86 (N.D. Ill. 2009); In re Dubey, 949 F. Supp. 2d 990, 993-96 (C.D. Cal. 2013); In re Application of Operadora DB, 2009 WL 2423138, at *8-12 (M.D. Fla. Aug. 4, 2009); In re Arbitration in London, England, 626 F. Supp. 2d 882, 885-86 (N.D. Ill. 2009).
In some instances, district courts within the same circuit have even reached conflicting conclusions. Compare, e.g., In re Ex Parte Application of Kleimar N.V., 220 F. Supp. 3d 517, 521 (S.D.N.Y. 2016) ("The Court also finds that the LMAA is a 'foreign tribunal' within Section 1782 [notwithstanding that] the Second Circuit has previously excluded private foreign tribunals from the scope of qualifying Section 1782 proceedings.") with In re Petrobas Sec. Litig., 393 F. Supp. 3d 376, 385 (S.D.N.Y. 2019) (holding private international arbitral tribunals are not foreign tribunals under §1782).
Consequently, the viability of a §1782 application in support of a private commercial arbitration may well depend upon the state of the law in the jurisdiction in which the application is made.
Section 1782 and Award Enforcement Proceedings
Section 1782 can also be a critical tool for enforcing and collecting upon arbitral awards, and, while its use in foreign award enforcement proceedings is largely uncontroversial, issues nevertheless remain.
Article III of the New York Convention allows courts to apply their own "rules of procedure" in enforcement proceedings, and the First, Second, Third, Ninth and D.C. Circuits have all held that parties must demonstrate personal jurisdiction over the award debtor in enforcement proceedings. See InterGen Naamloze Vennootschap v. Grina, 344 F.3d 134 (1st Cir. 2003); Frontera Resources Azerbaijan v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393 (2d Cir. 2009); Telcordia Techs. v. Telkom SA Ltd., 458 F.3d 172 (3d Cir. 2006); Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114 (9th Cir. 2002); GSS Group v. Nat'l Port Auth., 680 F.3d 805 (D.C. Cir. 2012).
When an award debtor is suspected of having assets in one of those circuits, but is not subject to personal jurisdiction, parties frequently commence enforcement proceedings outside the United States before bringing a §1782 proceeding against banks in a jurisdiction like New York to identify and locate the award debtor's assets.
This common tactic was recently rejected in the Southern District of New York, however, which denied a §1782 application filed in support of foreign enforcement proceedings on grounds that such proceedings are not "adjudicative" because "the merits of … [the] controversy have already been decided by the foreign tribunal." See In re Galaxy Energy & Res. Co. Pte. Ltd., No. 19-MC-0287-LTS, 2019 U.S. Dist. LEXIS 109718, at *1-3 (S.D.N.Y. July 1, 2019). While that decision is an outlier, resting on questionable legal reasoning, practitioners should nevertheless keep it in mind when considering §1782 to support enforcement proceedings.
The procedural posture of foreign enforcement proceedings can also impact the viability of §1782 applications, as some courts may be unwilling to grant §1782 applications in enforcement proceedings when annulment proceedings at the seat are ongoing and/or enforcement proceedings are stayed during an annulment application. See In re: Ex Parte Application of Uni-Top Asia Investment Limited For An Order To Obtain Discovery for Use in Foreign Proceedings, No. CIV-18-783-SLP, pgs. 14-15 (W.D. Okla. Jan. 8, 2019). Consequently, while §1782 is frequently used to support of foreign enforcement proceedings, such use cannot be presumed.
Section 1782 and Extraterritorial Discovery
In addition to obtaining evidence located in the United States, the Second Circuit recently opened the door to using §1782 to obtain evidence located abroad.
A successful §1782 application authorizes the applicant to serve a subpoena on the target. Once the subpoena is served, the matter becomes a standard discovery exercise under the Federal Rules of Civil Procedure, which require parties to produce documents within their possession, custody or control, Fed. R. Civ. P. 45(a)(1)(A)(iii), even if those documents are located outside the United States, see Fed. R. Civ. P. 45(c)(2)(A).
The Second Circuit recently held that "there is no per se bar to the extraterritorial application of §1782," and that district courts can decide in their discretion whether to allow extraterritorial discovery in connection with a §1782 application. In re del Valle Ruiz, 939 F.3d 520, 524 (2d Cir. 2019). The Eleventh Circuit reached the same conclusion in 2016. See Sergeeva v. Tripleton Int'l Ltd., 834 F.3d 1194 (11th Cir. 2016).
Accordingly, these highly-significant circuits deem §1782 to allow extraterritorial discovery. See In re del Valle Ruiz, 939 F.3d at 524 (citing Sergeeva, 834 F.3d at 1199-1200). The ability to bring an action in the United States to obtain discovery from around the globe for use in an international arbitration or award enforcement proceeding opens a wealth of possibilities for strategically-minded counsel.
Conclusion
Section 1782 is a valuable tool international arbitrations and award enforcement proceedings, particularly if extraterritorial discovery is allowed.
J.P. Duffy is a partner in Reed Smith's international arbitration group, based in New York. Philip Danziger is an associate in Reed Smith's life sciences and health care practice.
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