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Future of U.S. Discovery in International Arbitration Remains Unclear, But New Opportunities Emerge to Resolve Circuit Split

Oct.04.2021

The highly anticipated Supreme Court case Servotronics v. Rolls-Royce PLC and Boeing was expected to finally resolve the Circuit split regarding whether U.S. courts may order and compel discovery to aid in international commercial arbitrations under 28 U.S.C. § 1782. In a disappointment to practitioners and courts alike, the petitioner in Servotronics stipulated to the dismissal of its petition ahead of scheduled oral arguments, leaving the issue unresolved and forcing parties to continue navigating disparate jurisdictions. Fortunately, it appears that the Supreme Court will not lack new opportunities to provide clarity, as parties race to file similar petitions on the issue.

Until the Supreme Court provides a conclusive rule, parties considering seeking U.S. discovery to aid in their international arbitral proceedings should consider:

  • The Relevant Jurisdiction(s). Where a party seeks discovery will be highly determinative of whether the request will be successful. Currently, only the Fourth and Sixth Circuits have held that private commercial arbitrations fall within the scope of 28 U.S.C. § 1782. The Second, Fifth, and Seventh Circuits have come to the opposite conclusion. The Third and Ninth Circuits have the issue pending on appeal. The First, Eighth, Tenth, and D.C. Circuits have not yet ruled on the issue. Parties to treaty-based investor-state arbitrations have greater flexibility, as jurisdictions have uniformly considered these proceedings to be within the scope of § 1782, though this too appears to be facing challenges.
  • The Likelihood of Additional Costs and Delays. One of the reasons that private commercial arbitration is favored over U.S. litigation is because the proceedings tend to be more cost and time efficient, in large part due to the narrower scope of permissible discovery. Enabling potential U.S.-style discovery may increase costs and cause delays, and parties should consider whether the discovery sought is truly necessary. Moreover, parties should anticipate an appeal of any order entered, in any jurisdiction, given the controversy over the issue. Factoring in the appellate process, parties should anticipate additional costs and delays, likely impacting the availability of the disputed evidence in the underlying arbitral proceedings.  Parties may consider contractually restricting § 1782 discovery should they wish to prioritize cost and time efficiency over the ability to seek broader discovery.
  • The Risk of Change in Law. Given that the issue is so ripe for SCOTUS review, parties should be prepared for the law to change in their jurisdiction when (not if) another writ of certiorari is granted on the issue, no matter to what stage an underlying arbitration has proceeded.

In March 2021, the United States Supreme Court granted certiorari in Servotronics v. Rolls-Royce PLC and Boeing to resolve the federal circuit split over the meaning of “foreign or international tribunal” in 28 U.S.C. § 1782 and whether that term includes private international arbitral tribunals. The decision was expected to be significant as it would determine once and for all whether U.S. federal courts have the power to order and compel discovery to aid in private international arbitrations. Given the disparity between the traditionally narrow scope of discovery in international arbitrations and the relatively expansive scope favored in the United States, the decision was expected to have a considerable impact on the future of international arbitration involving a U.S. party or non-party target of discovery. The issue has been divisive. Both the Fourth and Sixth Circuits have held that private commercial arbitrations fall within the scope of § 1782, but the Second, Fifth, and Seventh Circuits have found that they do not. The Third and Ninth Circuits have the issue pending on appeal. Federal courts have uniformly held that treaty-based investor-state arbitrations do fall within the scope of the statute, though this concept is also being challenged.

Servotronics – which arose from an English commercial arbitration – was particularly appropriate to be before the Court on this issue because the Fourth and Seventh Circuits reached disparate conclusions on the proper interpretation in discovery disputes despite arising from the same arbitration, exact same parties, and the exact same non-party target of discovery. The Fourth Circuit had previously held that private commercial arbitrations are “foreign or international tribunals” within the meaning of § 1782 and granted the discovery petition, whereas the Seventh Circuit came to the opposite conclusion. The Seventh Circuit’s decision was the decision before the Supreme Court, and a flurry of amicus briefs on the issue were submitted, with the U.S. Solicitor General’s office having requested and been granted permission to participate in the oral arguments scheduled to begin on October 5, 2021. However, Petitioner Servotronics recently requested dismissal following the completion of the underlying arbitration in London this summer, and the Supreme Court officially dismissed the case on September 29, 2021.

Despite the initial disappointment surrounding the dismissal in Servotronics, the Supreme Court is unlikely to be short of opportunities to finally resolve the split. ZF Automotive submitted a petition for a writ of certiorari to the Supreme Court on the “substantially identical” question presented in Servotronics, which was whether 28 U.S.C. § 1782 encompasses private commercial arbitral tribunals. The petition was filed on September 10, two days after Servotronics was removed from the Court’s oral argument calendar. The ZF Automotive petition is unique as it requested the writ before the Sixth Circuit rules on the pending appeal of an order authorizing discovery under § 1782. The Sixth Circuit has previously held that private international commercial arbitrations do fall within the statute.

About a week after the ZF Automotive petition was filed, a target of discovery in an investment arbitration against Lithuania indicated in an emergency motion that he intends to file his own petition for writ of certiorari with the Supreme Court no later than October 7, 2021. The emergency motion, submitted by AlixPartners LLP CEO Simon Freakley, asks the Second Circuit to recall the § 1782 case from the Southern District of New York and stay enforcement of the ruling ordering discovery under the statute. Investor-state arbitrations have been given more leeway than commercial arbitrations in falling within the scope of § 1782. For example, while the Second Circuit takes the position that international commercial arbitrations do not qualify as a “foreign or international tribunal” under the statute, it takes the opposite position with respect to investment arbitrations, largely because such arbitrations arise from a treaty or similar instrument executed by States. In Servotronics, the United States submitted an amicus brief that argued that neither commercial nor investment arbitrations qualify as a “foreign or international tribunal,” noting that investor-state mechanisms share many of the salient features of private commercial arbitration. A major argument against the inclusion of private arbitrations, both commercial and investment, is that the tribunals overseeing the disputes are not associated with or formed by a specific government or coalition of governments, which some believe to be a critical requirement to qualify as a “foreign or international tribunal” under the statute.

Clarification from the Supreme Court as to the application of § 1782 to private commercial and investment arbitrations will be welcomed by courts and practitioners alike. For now, the availability of U.S. discovery to aid in private international arbitrations remains murky, and parties should continue to navigate carefully when considering what evidence will be available to them during the proceedings.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

T. Michael Guiffré
Partner – Washington, D.C.
Phone: +1 202.624.2501
Email: mguiffre@crowell.com
John L. Murino
Partner – Washington, D.C.
Phone: +1 202.624.2663
Email: jmurino@crowell.com
Leslie Castello
Associate – Washington, D.C.
Phone: +1 202.624.2794
Email: lcastello@crowell.com