The Supreme Court has granted cert over a petition asking the Court to decide whether federal courts may authorize discovery for use in private commercial arbitration abroad. Should the Court do so, its decision will have widespread implications for US companies conducting business overseas.
28 U.S.C. § 1782
Section 1782 makes US-style discovery available to parties litigating before foreign courts and tribunals where nothing like US-style discovery exists. Thus, Section 1782 can be a powerful weapon for a foreign litigant against a US entity in a foreign proceeding.
More specifically, Section 1782 authorizes a federal court to order a person residing or found in its district to give testimony or produce documents for use in a proceeding in a foreign or international tribunal.
Whether Section 1782 is applicable to private arbitration proceedings is a hotly contested issue, as evidenced by a split among the US Courts of Appeals on this issue—the Fourth and Sixth Circuits have held that Section 1782 is applicable to private arbitration, while the Second, Fifth and Seventh Circuits have held it is not.
The underlying case
On March 22, 2021, the Court granted certiorari in a case brought by aerospace parts maker Servotronics Inc., which is challenging the Seventh Circuit’s decision affirming a district court order denying its effort under Section 1782 to obtain document discovery from Boeing for use in an arbitration brought by Rolls-Royce PLC in London. Servotronics Inc. v. Rolls Royce PLC et al., Case No. 20-794.
The underlying dispute arose out of a January 2016 fire that occurred at a Boeing facility in Charleston, South Carolina, during a ground engine test. Boeing sought compensation from the engine manufacturer, Rolls-Royce, and eventually, the two companies settled the claim. Afterwards, Rolls-Royce sought compensation from Servotronics, the manufacturer of the engine valve in question, and ultimately submitted the matter to arbitration.
The Seventh Circuit held that a private foreign arbitration does not qualify as “a proceeding in a foreign or international tribunal foreign.” Illustrating the Circuit split on this issue, the Seventh Circuit’s decision came just six months after the Fourth Circuit held that the very same arbitration between Rolls-Royce and Servotronics was a proceeding in a foreign tribunal, and reversed a district court decision that had denied Servotronics’ Section 1782 petition to pursue depositions of three Boeing employees.
Implications
Since the Court’s seminal decision on the scope of Section 1782 in 2004, there has been a significant increase in the use of Section 1782, much of it driven by parties seeking to take advantage of the much broader scope of discovery afforded by US federal courts in comparison to arbitral tribunals against opponents in private arbitration proceedings abroad.
A decision holding that Section 1782 applies to private arbitration proceedings, would undermine an important benefit of arbitration to US companies—the much more limited and less costly scope of discovery available in arbitration compared to the expansive and costly scope of discovery afforded by US federal courts.
Such a decision could also place US companies at a structural disadvantage in any international arbitration proceeding against foreign parties not found in the US, as they may not be able to pursue comparable discovery from their foreign adversaries. Not only could this impact whether a US company is ultimately successful in an arbitration proceeding against a foreign party, but it also provides foreign litigants a tool for creating leverage in settlement negotiations before and during an arbitration matter.
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