INFORMATION

April 30, 2021

【Column】Dispute Resolution Update

INSIGHT

U.S. Supreme Court to Consider the Availability of U.S. Discovery for Parties in Private Arbitrations Seated Overseas

The U.S. Supreme Court will consider the scope of U.S. discovery permitted under 28 U.S.C. § 1782 in Servotronics, Inc. v. Rolls-Royce PLC and the Boeing Co., Case No. 20-794, for the October 2021 Term. Section 1782 is a statute that allows U.S. district courts to grant applicants the authority to issue subpoenas in the United States to obtain documents and/or testimony “for use in a proceeding in a foreign or international tribunal.” At issue before the Court is whether a “foreign or international tribunal” encompasses private commercial arbitral tribunals. This important question of U.S. federal law has significant implications for parties seeking to obtain evidence located within the United States for use in private arbitrations seated overseas.

This newsletter (of a two-part series) discusses the current matter before the Supreme Court. The second newsletter covers the statutory requirements under Section 1782 and provides practical considerations for parties when applying for, or defending against, a Section 1782 application.  

Discovery under Section 1782

Section 1782 permits any party or other interested person involved in a proceeding before a “foreign or international tribunal” to make a request to a federal district court to compel discovery (e.g., production of documents or testimony) from a person or entity found in the district where the court sits. The statute is a powerful procedural device because (1) the procedures to obtain evidence in international arbitrations generally are limited vis-à-vis common law jurisdictions, and (2) arbitral tribunals usually lack the ability to issue subpoenas or to compel a third-party to provide evidence. In effect, parties can avail themselves of broad U.S. discovery procedures to obtain evidence that might not be available through other means.

The statute does not define “foreign or international tribunal.” Federal courts have interpreted the phrase to include entities that act with governmental, administrative or quasi-governmental authority, which includes foreign courts, administrative bodies and arbitral tribunals established by bilateral or multilateral investment treaties. However, federal courts have disagreed for over twenty years on whether private commercial arbitral tribunals fall within the statute’s ambit. The Fourth and Sixth Circuit Courts of Appeals have held that Section 1782 applies to private commercial arbitrations, while the Second, Fifth and Seventh Circuits have held that it does not. The pending cases in the Third and Ninth Circuits could deepen the divide.

Nature of Dispute Before the Supreme Court

The issue before the Supreme Court arose after Servotronics, Inc., a manufacturer of components for aircraft engines, sought Section 1782 discovery for use in a U.K.-based arbitration against Rolls-Royce PLC.

In January 2016, a Rolls-Royce engine that was installed on the Boeing 787-9 Dreamliner aircraft caught fire during flight tests in South Carolina, damaging the aircraft. Boeing demanded compensation from Rolls-Royce, and Rolls-Royce and its insurers settled with Boeing for $12 million in 2017. Rolls-Royce then sought indemnification from Servotronics, claiming that Servotronics’ valve caused the fire. Pursuant to the parties’ contract, Rolls Royce initiated arbitration in London under the rules of the Chartered Institute of Arbitrators.

Thereafter, Servotronics filed parallel Section 1782 applications to obtain discovery from Boeing for use in the London arbitration. One application was filed in the District of South Carolina, where certain Boeing employee-witnesses were based, and the other in the Northern District of Illinois, where Boeing is headquartered.

The district court in South Carolina denied Servotronics’ application. In Servotronics, Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020), the Fourth Circuit reversed and remanded, holding that the arbitral panel in the United Kingdom is a foreign tribunal for purposes of Section 1782. The Fourth Circuit reasoned that even if the “definition of ‘foreign or international tribunal’” only encompassed “entities acting with the authority of the State,” statutes that govern private arbitral tribunals such as the Federal Arbitration Act or the U.K. Arbitration Act would satisfy the definition.

Despite being the same dispute, the Seventh Circuit reached a disparate conclusion. The district court in the Northern District of Illinois granted Servotronics’ application and issued the subpoena, however, Rolls Royce and Boeing successfully moved to vacate and quash the subpoena. In Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2020), the Seventh Circuit affirmed the district court’s decision to quash the subpoena, holding that Section 1782 limits “foreign or international tribunal” to a state-sponsored, public or quasi-governmental tribunal, and does not include private foreign arbitrations.

Servotronics thereafter filed a petition for a writ of certiorari with the Supreme Court for review of the Seventh Circuit’s decision. The Court granted the petition on March 22, 2021, and is scheduled to hear the case in the October 2021 Term.

Supreme Court Review

Because the circuit courts have issued conflicting rulings regarding which arbitral bodies are considered Section 1782 “tribunals” for which discovery can be sought, the Supreme Court has an opportunity to finally resolve the issue and remove the uncertainty of district courts, practitioners and parties. The dispute may be moot, however, if the underlying arbitration (scheduled for this May) is concluded and a final award issued before the Court hears the case. The Court nevertheless may decide to hear the issue given the longstanding split in authority.

In the interim, parties will need to carefully consider where and when to file Section 1782 applications. The second part of this series discusses these and other practical considerations.

(Written by: Christopher Studebaker)


*This Newsletter is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.
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Contact:Christopher Studebaker Tel: +81-(0)3-6273-3519 (Direct) E-mail: chris.studebaker@tkilaw.com