In those courts, of course, “manifest disregard” will no longer be available to challenge domestic awards, much less international awards.
Non-Party Discovery
In 2005, we addressed the subject of obtaining evidence from non-parties for use in arbitration.8 In federal courts, the issue is governed by the FAA, which provides, in relevant part:
9 USC §7 (emphasis added). The plain language of the statute would seem to indicate that §7 does not permit non-party, pre-hearing discovery because the non-party must be summoned to appear before the arbitrators. In fact, though, the courts have split on the issue.
The U.S. Court of Appeals for the Third Circuit, for example, relies on the plain meaning of the statute to hold that pre-hearing discovery from non-parties is not authorized by the FAA.9 In contrast, according to the U.S. Court of Appeals for the Eighth Circuit, implicit in an arbitrator’s authority to compel the production of documents at a hearing is the power to order the production of documents for review prior to the hearing.10 The court reasoned that the guiding principle should be efficient dispute resolution and pre-hearing production allows for such efficiency (although no court has held on a contested motion that the FAA authorizes pre-hearing depositions of non-parties).
The Second Circuit had refrained from ruling on the issue, although it had held that one way of getting around the limitation of the statute is for the non-party to appear before one or more arbitrators at a pre-merits hearing.11 But recently, the issue came before the Second Circuit in Life Settlements Corp. v. Syndicate 102 at Lloyd’s of London.12 Relying on the language of §7, the Second Circuit joined the Third and Fourth Circuits in interpreting the plain language of §7 as withholding the power to compel a non-party to produce documents where the non-party has not been summoned to testify at a hearing. Owing to the large number of arbitrations in New York, this is a significant decision.
In the area of international arbitration, to the extent that such an arbitration is proceeding in New York, in all likelihood, the decision in Life Settlements will govern. However, is discovery available in the United States in aid of an international arbitration being conducted abroad? That is an issue we addressed in our July 2008 column,13 in which we discussed a newly published report of the International Commercial Disputes Committee of the City Bar Association that recommended a number of “best practices” with respect to the intersection of international arbitration and 28 USC §1782, the statute that authorizes discovery in aid of foreign proceedings.
Using §1782
The issue of the use of §1782 in aid of international arbitration received renewed attention after the Supreme Court’s decision in Intel Corporation v. Advanced Micro Devices Inc.14 quoted from an article by Professor Hans Smit, the primary drafter of §1782,who said that, as used in the text of §1782, “the term ‘tribunal’ . . . includes . . . arbitral tribunals.”15 The two circuit courts that addressed the issue before Intel, the Second and Fifth, both held that §1782 could not be used to obtain discovery in connection with an international arbitration.16 After Intel, though, a number of district courts reached the opposite result and, relying in part on the Supreme Court’s reference to Mr. Smit’s article, held that §1782 discovery was indeed available in aid of private, international arbitrations being conducted outside the United States.17
But, as we pointed out in our earlier article, it is significant that neither the Second nor the Fifth Circuit (nor district courts within either circuit) were called upon to decide if their 1782 jurisprudence was still good law. Now, that has changed. La Comision Ejecutiva Hidroelectrica del Rio Lempa v. El Paso Corp.18 is the first decision from a district court in the Fifth Circuit to address the issue since Intel.
The district court there initially granted a §1782 application authorizing depositions and document production in connection with an arbitration in Switzerland. On reconsideration, the court reversed itself. The court explained that it was bound by the Fifth Circuit’s decision in Kazakhstan v. Biedermann that §1782 did not apply to international arbitration.
The court acknowledged that other district courts had held that the post-Biedermann decision in Intel seemed to indicate that §1782 could be used to compel discovery in aid of international arbitration. But in the opinion of this court, it was clear that Intel never addressed the issue of whether §1782 applied to international arbitration. The court said that it gave no weight to the Supreme Court’s reference to the term “arbitral tribunal” in Mr. Smit’s article because there was no indication that the Supreme Court agreed with Professor’s Smit opinion that the word “tribunal” should include international arbitration tribunals. The Fifth Circuit had analyzed the issue of whether §1782 may be used in aid of private arbitration and that decision, rather than a passing reference to a law journal article, was determinative.
Interestingly, the 1782 applicant also brought an application in the district court in Delaware, which held that discovery was available in aid of arbitration.19 These two district court decisions are both now on appeal.
Clearly, there is an evolving split in the courts on the issue of whether §1782 may be used in aid of private international arbitration. To the extent that courts interpret §1782 to allow discovery in aid of international arbitration outside the United States, but interpret §7 of the FAA narrowly so as not to allow pre-hearing discovery, they will create an interesting dichotomy. That is, pre-hearing depositions and document production would be available in aid of arbitrations taking place abroad but not those seated in the United States. Such a dichotomy does not mean that the decisions leading to this result are wrong, in that the courts are interpreting two different statutes. It might, however, lead some to conclude that one of the statutes should be modified so that there is consistency.
Lawrence W. Newman and David Zaslowsky are partners in the litigation department of the New York office of Baker & McKenzie. They are co-authors of “Litigating International Commercial Disputes” (West Group) and can be reached at [email protected] and [email protected], respectively.
Endnotes:
1. “‘Manifest Disregard’ in International Arbitration,” New York Law Journal, July 31, 2006.
2. Yusuf Ahmed Alghanim & Sons v. Toys R Us Inc., 126 F.3d 15 (2d Cir. 1997).
3. 128 S. Ct. 1396 (2008).
4. Stolt-Nielsen SA v. Animalfeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008).
5. Coffee Beanery, Ltd. v. WW, LLC, 2008 U.S. App. LEXIS 23645, 11-12 (6th Cir. Mich. 2008).
6. Citigroup Global Markets Inc. v. Bacon, No. 07-20670 (5th Cir. March 5, 2009).
7. Ramos-Santiago v. United Parcel Service, 524 F.3d 120 (1st Cir. 2008). See also Prime Therapeutics LLC v. Omnicare Inc., 555 F.Supp.2d 993 (D. Minn. 2008).
8. “Obtaining Evidence From Third Parties for Use in International Arbitration,” New York Law Journal, July 25, 2005.
9. Hay Group Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir. 2004).
10. In re Security Life Insurance Co. of America, 228 F.3d 865 (8th Cir. 2000).
11. Stolt-Nielsen S.A. v. Celanese AG, 430 F.3d 567 (2d Cir. 2005).
12. 2008 WL 4978550 (2d Cir. Nov. 25, 2008).
13. “Use of Section 1782 in Aid of International Arbitration,” New York Law Journal, July 30, 2008.
14. 542 U.S. 241, 248 (2004).
15. Intel, 542 at 258 (quoting Hans Smit, “International Litigation Under the United States Code,” 65 Colum. L. Rev. 1015, 1026-27 (1965)).
16. Nat’l Broad. Co. Inc. v. Bear Stearns & Co. Inc., 165 F.3d 184 (2d. Cir. 1999); Republic of Kazakhstan v. Biedermann, 168 F.3d 880 (5th Cir. 1999).
17. In re Roz Trading Ltd., 469 F.Supp.2d 1221 (N.D. Ga. 2006); In re Application of Hallmark Capital Corporation, 534 F.Supp.2d 951 (D. Minn. 2007); In re: Application of Babcock Borsig AG for Assistance Before a Foreign Tribunal, Case No. 08-mc-10128-DPW (D. Mass. 2008).
18. 2008 U.S. Dist. LEXIS 94395 (S.D. Tex. Nov. 20, 2008).
19. See Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-135, 2008 WL 4809035, at *1 (D. Del. Oct. 14, 2008).
