Second Circuit Court of Appeals Confirms That U.S. Discovery is Not Available in Aid of Foreign Private Arbitration

The Second Circuit Court of Appeals issued a decision re-affirming its prior precedent that 28 U.S.C. § 1782(a), which authorizes federal courts to compel the production of materials for use in a “foreign or international tribunal”, does not extend to foreign private arbitration.  In re: Application and Petition of Hanwei Guo, 19-781 (2d Cir. July 8, 2020) (citing with approval NBC, Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184 (2d Cir. 1999)). As previously reported, U.S. Courts have been divided on the issue of whether the U.S. discovery statute extends to private arbitrations in light of the 2004 U.S. Supreme Court decision which held the tribunal definition in the statute was “unbounded by categorical rules.” Intel Corp. v. Adv. Micro Devices, Inc., 542 U.S. 241 (2004).  The Intel decision quoted from a 1965 law review article by Professor Hans Smit which stated that the legislative history of the statute intended to include “arbitral tribunals.” Id. Over the past fifteen (15) years federal courts have debated whether the reference intended to expand the statute’s application or was merely a passing reference in dicta.

In Guo, the petitioner was seeking discovery from four (4) investment banks in aid of an arbitration pending before the China International Economic and Trade Arbitration Commission (“CIETAC”). It was undisputed that CIETAC was developed by the People’s Republic of China in 1954 as part of the China Council for the Promotion of International Trade, but CIETAC’s jurisdiction over disputes is restricted to private parties who have selected CIETAC arbitration by contract (and some contractual disputes between investors and Chinese governmental entities which are governed by separate rules). The district court denied the petition, holding that pursuant to binding Second Circuit precedent of NBC, discovery was not permitted under § 1782(a) for use in a private commercial arbitration.  The district court also held that CIETAC was closer to a private arbitral body as opposed to a state-sponsored adjudicatory tribunal and therefore the application for discovery was foreclosed by NBCGuo appealed both issues.

The Second Circuit revisited the issues and analysis of both NBC and Intel, holding unequivocally that the distinct question raised by NBC – whether a private international arbitration tribunal qualifies as a “tribunal” under § 1782 – was not before the U.S. Supreme Court in Intel.  The Second Circuit reviewed the recent decisions by both the Sixth Circuit Court of Appeals and Fourth Circuit Court of Appeals (discussed here) and pointed out that while those courts came to different conclusions on the issue of whether the statute can be used in aid of foreign private arbitration, neither Court actually relied upon Intel to suggest the Second Circuit’s holding in NBC had been overruled by the U.S. Supreme Court. Accordingly, the Second Circuit found that since Intel did not address (or cast ‘sufficient doubt’) on the reasoning or holding of NBC, then the decision remained good law and binding precedent in the Second Circuit.  NBC’s holding can only be overruled by the full panel of Second Circuit Judges sitting en banc or by the U.S. Supreme Court.

The Second Circuit further stated that the dicta from Intel is not even necessarily at odds with the prior decision in NBC, holding: “Professor Smit’s reference to “arbitral tribunals” does not necessarily encompass private tribunals, particularly in light of his view, expressed in a 1962 article cited in NBC, that “an international tribunal owes both its existence and its powers to an international agreement.” Hans Smit, Assistance Rendered by the United States in Proceedings Before International Tribunals, 62 Colum. L. Rev. 1264, 1267 (1962); see also NBC, 165 F.3d at 189. Intel’s indirect reference to “arbitral tribunals” can thus be read consistently with NBC as referring solely to state-sponsored arbitral bodies.” Id., at p. 17.  The Second Circuit ruled that neither Professor Smit’s article nor the reference to same in Intel cast any doubt upon the analysis in NBC that the legislative intent of Congress in drafting § 1782(a) did not intend to include private commercial arbitration.

The Second Circuit also affirmed the district court’s ruling on the second issue pending on appeal. Holding that CIETAC was a private commercial arbitration and not a state sponsored tribunal.  In answering the question, the Second Circuit ruled that the inquiry does not turn on the origins of the administrative entity, or even a single fact or factor, but requires the Court to assess whether the body in question “possesses the functional attributes most commonly associated with private arbitration.”  Id., at p. 21.   The Second Circuit found that CIETAC operates much like any other private commercial arbitration with minimal involvement by the Chinese government, and therefore § 1782 discovery was not available.

There are now firmly two (2) Circuit Courts (the Second and Fifth Circuits) which have ruled post-Intel that discovery pursuant to § 1782 is not available in foreign private arbitrations and two (2) Circuit Courts (the Fourth and Sixth Circuits) which have ruled that it is available.  It appears more likely than ever that the issue may be destined for the U.S. Supreme Court to resolve the circuit split.  Congress could always take up the issue and amend the law to make clear whether foreign private arbitrations are included.  However, given the fact that the statute’s last amendment from 1964 which added the word “tribunal” is still the subject of considerable litigation fifty-five (55) years later, helpful clarification from Congress is unlikely anytime soon.

The Second Circuit’s July 8, 2020 decision, In re: Application and Petition of Hanwei Guo, can be found here.