Mixing International Arbitration with U.S. Discovery

In Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the Supreme Court held, inter alia, that ' 1782 can be used to obtain discovery in the United States in connection with the investigative stage of a complaint filed with the Directorate General-Competition of the Commission of the European Communities. The Court concluded that the European Commission is a “tribunal” within the meaning of
' 1782 because it “acts as a first instance decisionmaker” subject to judicial review, 542 U.S. at 258, and because the Commission's investigatory process “leads to a dispositive ruling, i.e., a final administrative action both responsive to the complaint and reviewable in court.” 541 U.S. at 255.

International Arbitrations

This holding plainly did not address private international arbitrations. In the decision, however, the Supreme Court quoted with approval from a Senate Committee Report that stated that Congress used the word “tribunal” “to ensure that 'assistance is not confined to proceedings before conventional courts.'” 542 U.S. at 249, quoting S.Rep. No. 1580, 88th Cong., 2d Sess., 7 (1964). The Court also quoted with approval from Columbia University Professor Hans Smit that “'the term “tribunal” ' includes ' arbitral tribunals ' .'” 542 U.S. at 258, quoting Smit, International Litigation under the United States Code, 65 Columbia L.Rev. 1015, 1026-27 and nn. 71, 73 (1965).

There have been no federal appellate decisions since Intel Corp. revisiting the availability of ' 1782(a) in connection with an international arbitration, but several district courts have addressed the question. Most have concluded that the Supreme Court decision demonstrates that the statute can be invoked for private international arbitrations.

What Are Tribunals?

Most recently, the court in In re Babcock Borsig AG held that both the quotations used by the Supreme Court and its reasoning indicate that private arbitral bodies (there, the ICC) are tribunals within the meaning of ' 1782. The same conclusion has been reached, using similar reasoning, with respect to the International Arbitral Centre of the Austrian Federal Economic Chamber in Vienna (In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1224-28 (N.D. Ga. 2006)) and a private Israeli arbitration (no administering body noted) (In re Hallmark Capital Corp., 534 F. Supp. 2d 951, 954-957 (D. Minn. 2007)). See also Comision Ejecutiva Hidroelectrica del Rio Lempa v. Nejapa Power Company, L.L.C., 2008 WL 489035 (D. Del. Oct. 14, 2008) (denying motion for reconsideration of order granting ' 1782 application in connection with unspecified foreign arbitration (known from another case to be in Geneva)). Courts have also relied on the perception that the “common usage” and the “widely accepted definition” of “tribunal” include arbitral bodies. In re Roz Trading, 469 F. Supp. 2d at 1225-26; In re Babcock Borsig AG, 2008 WL 4748208 at *4.

The only decision after Intel Corp. holding that ' 1782(a) does not authorize discovery for use in an international arbitration is Comision Ejecutiva Hidroelectrica del Rio Lempa v. El Paso Corp., 2008 WL 5070119 (S.D. Tex. Nov. 20, 2008), which dismissed as insignificant the Supreme Court's reference to the Smit article and held that Republic of Kazakhstan remained controlling authority for it. Id. at *4-*5. See also In re Oxus Gold PLC, 2007 WL 1037387, *4-*5 (D.N.J. Apr. 2, 2007) (holding that an arbitration panel acting under a Bilateral Investment Treaty between the United Kingdom and Kyrgyzstan was a “foreign tribunal” within the meaning of ' 1782(a), but quoting with apparent approval the pre-Intel Corp. decisions that held the statute was not available in connection with private arbitrations, and stressing that that particular arbitration was “being conducted within a framework defined by two nations” and was governed by UNCITRAL rules).

In Intel Corp., the Supreme Court emphasized that ' 1782(a) authorizes, but does not require, a U.S. district court to grant a discovery application, and the Court explicated “factors that bear consideration in ruling on a ' 1782(a) request.” 542 U.S. at 264. To paraphrase the Court's remarks:

• A need for ' 1782(a) aid is generally more likely to be present when evidence is sought from an entity that is not itself a participant in the foreign proceeding;
• The district court should consider the nature of the foreign tribunal, the character of the proceedings, and the receptivity of the foreign government or tribunal to U.S. judicial assistance (emphasis added);
• The district court should consider whether the ' 1782(a) request seeks to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States; and
• Unduly intrusive or burdensome requests can/should either be rejected or trimmed (and appropriate protections of confidentiality can/should be imposed).

These factors apply to, but are not unique to, the possible use of ' 1782 in connection with international arbitrations.

In re Babcock Borsig AG

In re Babcock Borsig AG arose because of an arbitration agreement in a contract by which a German company sold assets to a Japanese company; the contract called for ICC arbitration in Germany. 2008 WL 4748208 at *1-*2. Before any arbitration was filed, the German company filed a
' 1782 application for discovery from a Massachusetts-based company that had purchased other assets from the German company. Both the Massachusetts company and the Japanese company, which was allowed to intervene, opposed the application.

After deciding that use in the potential arbitration was within the statutory authorization, the court addressed the Intel Corp. discretionary factors. Although acknowledging that the Massachusetts company might have evidence that could not be obtained from the parties to the potential arbitration, the court denied the application, without prejudice to renewal. The court expressly placed special weight on the receptivity and possible circumvention of policy factors. 2008 WL 4748208 at *6-*7. It held that these factors counseled against granting the discovery because of the lack of “authoritative proof” ' an affirmative indication from the ICC itself ' as to whether the ICC would be receptive to the requested materials. It also stressed that the party seeking the materials had already litigated against the Massachusetts company without obtaining this discovery and had delayed two years without actually commencing the arbitration. Id. at *8. The court stated, however, that it was “ready and willing to reconsider this ruling” if “the ICC indicates its receptivity to some or all” of the requested materials. Id.

This case's requirement of an affirmative indication of receptivity from the foreign tribunal is out of step with the almost-universal approach of U.S. courts to the burden of proof as to the “receptivity” factor under ' 1782(a). Most courts hold that absent “authoritative proof” that the foreign tribunal is not receptive to either the concept of U.S. judicial assistance or the admissibility of the evidence being discovered, discovery should proceed. For example, in In re Imanagement Services Ltd., 2006 WL 547949, *4 (D.N.J. Mar. 3, 2006), the court stated that “[w]hen analyzing this consideration, courts have determined that there was a lack of receptivity only by affirmative evidence, such as evidence showing that the foreign jurisdiction rejected outright federal judicial assistance from the United States.” In a widely cited pre-Intel Corp. decision, In re Bayer AG, 146 F.3d 188, 196 (3d Cir. 1998), the Court of Appeals held that “the burden of demonstrating offense to the foreign jurisdiction, or any other facts warranting the denial of particular application, should rest with the party opposing the application.” See also Minatec Finance S.A.R.L. v. S.I. Group, Inc., 2008 WL 3884374, *5-*7 (N.D.N.Y. Aug. 18, 2008); Weber v. Finker, 2007 WL 4285362, *4-*5 (M.D. Fla. Nov. 30, 2007).

Thus, other courts faced with a ' 1782 application for discovery are likely to hold that the “receptivity” and “circumvention of policy” factors do not justify denial of the application unless there is some specific or direct evidence that the foreign tribunal is unreceptive or that the application itself is contrary to some national policy.

Analysis

In drafting agreements providing for an international arbitration, our companies should consider whether they want to seek expressly to preclude use of ' 1782. There are no cases addressing the impact or enforceability of such a provision in an arbitration agreement, but given that arbitration is widely treated as a creature of contract, such a provision could certainly be said to be a form of “affirmative evidence” that the foreign tribunal is or, more precisely, will be unreceptive to the use of ' 1782.

Assessment of the potential benefits and drawbacks of ' 1782 in connection with a given contract requires a case-by-case analysis of likely targets for such discovery and the likely materials that could be sought. Given the language of the statute, most courts limit ' 1782 discovery to the production of material (and witnesses) present in the United States. The question of which contracting party is more likely to have U.S.-located and relevant third parties, including unrelated third parties such as customers, suppliers or clients, will vary from case to case.

Companies involved in international arbitrations should in any event consider whether there are third parties, whether corporate affiliates or merely business contacts of the arbitral adversary, that are located in the United States and that have relevant documents or witnesses. Section 1782 may be a powerful tool for developing evidence and achieving an advantage in international arbitrations.

Indeed, as suggested by In re Babcock Borsig AG, ' 1782 discovery can be sought before a dispute has actually reached arbitration. The Supreme Court in Intel Corp. also held that the proceeding for which ' 1782 discovery was sought did not have to be pending, as long as a dispositive ruling was “within reasonable contemplation.” 542 U.S. at 259. Use of ' 1782 discovery may in some situations contribute to the resolution of disputes without the necessity of conducting a full-blown international arbitration.

Michael G. Biggers is the leader of the International Arbitration Team at Bryan Cave LLP, and is resident in the firm's New York office. Biggers practices primarily in the area of complex business litigation and has been involved in appeals before the United States Supreme Court, most United States Courts of Appeals and several state appellate courts. He may be reached at [email protected].

A United States court decision highlights the opportunities and pitfalls associated with the potential use of U.S.-style discovery to obtain materials for use in international arbitrations. In re Babcock Borsig AG, 2008 WL 4748208 (D. Mass. Oct. 30, 2008), joins a growing number of decisions holding that United States federal district courts are authorized to order such discovery. This represents an additional subject to be considered both in advising foreign clients as to drafting clauses agreeing to international arbitration and in conducting such arbitrations.

Background

28 U.S.C. ' 1782 authorizes a United States district court to order discovery in aid of foreign proceedings. The first two sentences of subsection (a) of the statute state in pertinent part:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal ' . The order may be made ' upon the application of any interested person ' .

For a number of years the most authoritative decisions held that this statute did not authorize such discovery for use in an international commercial arbitration. As illustrated by In re Babcock Borsig AG, more recent decisions have significantly increased the possibility that the statute, and therefore U.S.-style discovery, can be invoked by a party in connection with an international arbitration.

In Intel Corp. v. Advanced Micro Devices, Inc. , 542 U.S. 241 (2004), the Supreme Court held, inter alia , that ' 1782 can be used to obtain discovery in the United States in connection with the investigative stage of a complaint filed with the Directorate General-Competition of the Commission of the European Communities. The Court concluded that the European Commission is a “tribunal” within the meaning of
' 1782 because it “acts as a first instance decisionmaker” subject to judicial review, 542 U.S. at 258, and because the Commission's investigatory process “leads to a dispositive ruling, i.e., a final administrative action both responsive to the complaint and reviewable in court.” 541 U.S. at 255.

International Arbitrations

This holding plainly did not address private international arbitrations. In the decision, however, the Supreme Court quoted with approval from a Senate Committee Report that stated that Congress used the word “tribunal” “to ensure that 'assistance is not confined to proceedings before conventional courts.'” 542 U.S. at 249, quoting S.Rep. No. 1580, 88th Cong., 2d Sess., 7 (1964). The Court also quoted with approval from Columbia University Professor Hans Smit that “'the term “tribunal” ' includes ' arbitral tribunals ' .'” 542 U.S. at 258, quoting Smit, International Litigation under the United States Code, 65 Columbia L.Rev. 1015, 1026-27 and nn. 71, 73 (1965).

There have been no federal appellate decisions since Intel Corp. revisiting the availability of ' 1782(a) in connection with an international arbitration, but several district courts have addressed the question. Most have concluded that the Supreme Court decision demonstrates that the statute can be invoked for private international arbitrations.

What Are Tribunals?

Most recently, the court in In re Babcock Borsig AG held that both the quotations used by the Supreme Court and its reasoning indicate that private arbitral bodies (there, the ICC) are tribunals within the meaning of ' 1782. The same conclusion has been reached, using similar reasoning, with respect to the International Arbitral Centre of the Austrian Federal Economic Chamber in Vienna (In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1224-28 (N.D. Ga. 2006)) and a private Israeli arbitration (no administering body noted) (In re Hallmark Capital Corp., 534 F. Supp. 2d 951, 954-957 (D. Minn. 2007)). See also Comision Ejecutiva Hidroelectrica del Rio Lempa v. Nejapa Power Company, L.L.C., 2008 WL 489035 (D. Del. Oct. 14, 2008) (denying motion for reconsideration of order granting ' 1782 application in connection with unspecified foreign arbitration (known from another case to be in Geneva)). Courts have also relied on the perception that the “common usage” and the “widely accepted definition” of “tribunal” include arbitral bodies. In re Roz Trading, 469 F. Supp. 2d at 1225-26; In re Babcock Borsig AG, 2008 WL 4748208 at *4.

The only decision after Intel Corp. holding that ' 1782(a) does not authorize discovery for use in an international arbitration is Comision Ejecutiva Hidroelectrica del Rio Lempa v. El Paso Corp., 2008 WL 5070119 (S.D. Tex. Nov. 20, 2008), which dismissed as insignificant the Supreme Court's reference to the Smit article and held that Republic of Kazakhstan remained controlling authority for it. Id. at *4-*5. See also In re Oxus Gold PLC, 2007 WL 1037387, *4-*5 (D.N.J. Apr. 2, 2007) (holding that an arbitration panel acting under a Bilateral Investment Treaty between the United Kingdom and Kyrgyzstan was a “foreign tribunal” within the meaning of ' 1782(a), but quoting with apparent approval the pre-Intel Corp. decisions that held the statute was not available in connection with private arbitrations, and stressing that that particular arbitration was “being conducted within a framework defined by two nations” and was governed by UNCITRAL rules).

In Intel Corp., the Supreme Court emphasized that ' 1782(a) authorizes, but does not require, a U.S. district court to grant a discovery application, and the Court explicated “factors that bear consideration in ruling on a ' 1782(a) request.” 542 U.S. at 264. To paraphrase the Court's remarks:

• A need for ' 1782(a) aid is generally more likely to be present when evidence is sought from an entity that is not itself a participant in the foreign proceeding;
• The district court should consider the nature of the foreign tribunal, the character of the proceedings, and the receptivity of the foreign government or tribunal to U.S. judicial assistance (emphasis added);
• The district court should consider whether the ' 1782(a) request seeks to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States; and
• Unduly intrusive or burdensome requests can/should either be rejected or trimmed (and appropriate protections of confidentiality can/should be imposed).

These factors apply to, but are not unique to, the possible use of ' 1782 in connection with international arbitrations.

In re Babcock Borsig AG

In re Babcock Borsig AG arose because of an arbitration agreement in a contract by which a German company sold assets to a Japanese company; the contract called for ICC arbitration in Germany. 2008 WL 4748208 at *1-*2. Before any arbitration was filed, the German company filed a
' 1782 application for discovery from a Massachusetts-based company that had purchased other assets from the German company. Both the Massachusetts company and the Japanese company, which was allowed to intervene, opposed the application.

After deciding that use in the potential arbitration was within the statutory authorization, the court addressed the Intel Corp. discretionary factors. Although acknowledging that the Massachusetts company might have evidence that could not be obtained from the parties to the potential arbitration, the court denied the application, without prejudice to renewal. The court expressly placed special weight on the receptivity and possible circumvention of policy factors. 2008 WL 4748208 at *6-*7. It held that these factors counseled against granting the discovery because of the lack of “authoritative proof” ' an affirmative indication from the ICC itself ' as to whether the ICC would be receptive to the requested materials. It also stressed that the party seeking the materials had already litigated against the Massachusetts company without obtaining this discovery and had delayed two years without actually commencing the arbitration. Id. at *8. The court stated, however, that it was “ready and willing to reconsider this ruling” if “the ICC indicates its receptivity to some or all” of the requested materials. Id.

This case's requirement of an affirmative indication of receptivity from the foreign tribunal is out of step with the almost-universal approach of U.S. courts to the burden of proof as to the “receptivity” factor under ' 1782(a). Most courts hold that absent “authoritative proof” that the foreign tribunal is not receptive to either the concept of U.S. judicial assistance or the admissibility of the evidence being discovered, discovery should proceed. For example, in In re Imanagement Services Ltd., 2006 WL 547949, *4 (D.N.J. Mar. 3, 2006), the court stated that “[w]hen analyzing this consideration, courts have determined that there was a lack of receptivity only by affirmative evidence, such as evidence showing that the foreign jurisdiction rejected outright federal judicial assistance from the United States.” In a widely cited pre-Intel Corp. decision, In re Bayer AG, 146 F.3d 188, 196 (3d Cir. 1998), the Court of Appeals held that “the burden of demonstrating offense to the foreign jurisdiction, or any other facts warranting the denial of particular application, should rest with the party opposing the application.” See also Minatec Finance S.A.R.L. v. S.I. Group, Inc., 2008 WL 3884374, *5-*7 (N.D.N.Y. Aug. 18, 2008); Weber v. Finker, 2007 WL 4285362, *4-*5 (M.D. Fla. Nov. 30, 2007).

Thus, other courts faced with a ' 1782 application for discovery are likely to hold that the “receptivity” and “circumvention of policy” factors do not justify denial of the application unless there is some specific or direct evidence that the foreign tribunal is unreceptive or that the application itself is contrary to some national policy.

Analysis

In drafting agreements providing for an international arbitration, our companies should consider whether they want to seek expressly to preclude use of ' 1782. There are no cases addressing the impact or enforceability of such a provision in an arbitration agreement, but given that arbitration is widely treated as a creature of contract, such a provision could certainly be said to be a form of “affirmative evidence” that the foreign tribunal is or, more precisely, will be unreceptive to the use of ' 1782.

Assessment of the potential benefits and drawbacks of ' 1782 in connection with a given contract requires a case-by-case analysis of likely targets for such discovery and the likely materials that could be sought. Given the language of the statute, most courts limit ' 1782 discovery to the production of material (and witnesses) present in the United States. The question of which contracting party is more likely to have U.S.-located and relevant third parties, including unrelated third parties such as customers, suppliers or clients, will vary from case to case.

Companies involved in international arbitrations should in any event consider whether there are third parties, whether corporate affiliates or merely business contacts of the arbitral adversary, that are located in the United States and that have relevant documents or witnesses. Section 1782 may be a powerful tool for developing evidence and achieving an advantage in international arbitrations.

Indeed, as suggested by In re Babcock Borsig AG, ' 1782 discovery can be sought before a dispute has actually reached arbitration. The Supreme Court in Intel Corp. also held that the proceeding for which ' 1782 discovery was sought did not have to be pending, as long as a dispositive ruling was “within reasonable contemplation.” 542 U.S. at 259. Use of ' 1782 discovery may in some situations contribute to the resolution of disputes without the necessity of conducting a full-blown international arbitration.

Michael G. Biggers is the leader of the International Arbitration Team at Bryan Cave LLP, and is resident in the firm's New York office. Biggers practices primarily in the area of complex business litigation and has been involved in appeals before the United States Supreme Court, most United States Courts of Appeals and several state appellate courts. He may be reached at [email protected].