Reed Smith Client Alerts

In the recent decision of In re: Application and Petition of Hanwei Guo,1 the U.S. Court of Appeals for the Second Circuit reaffirmed its view that (1) private arbitral tribunals seated outside the United States do not qualify as foreign or international tribunals for purposes of 28 U.S.C. section 1782; and (2) parties may not, therefore, seek discovery from a U.S. federal court pursuant to section 1782 in support of foreign-seated private arbitral tribunals. Hanwei is significant because it (1) reaffirms the position the Second Circuit first asserted in 1999 that section 1782 cannot be used to support private arbitral tribunals; (2) solidifies the existing circuit split on that question; and (3) significantly increases the likelihood that the Supreme Court will take up the question this fall if a certiorari petition is filed in Servotronics, Inc. v. Boeing Co.2

Authors: James P. Duffy IV Ed Mullins James M. Brennan

I. Hanwei background

Hanwei concerns a dispute between an investor (Guo) on the one hand, and music streaming companies in which Guo had invested and their principal (Ocean Entities) on the other. In relevant part, Guo invested approximately $26 million in the Ocean Entities and later sold that interest at an allegedly deflated value because of transactions that the Ocean Entities had undertaken.

In September 2018, Guo commenced an arbitration against the Ocean Entities principal and others before the China International Economic and Trade Arbitration Commission (CIETAC), alleging that the respondents had defrauded him out of his investment. A hearing on the merits in the arbitration is apparently scheduled to begin imminently.

In December 2018, Guo filed a section 1782 application in the Southern District of New York against four investment banks that sought documents to be used in the arbitration. The federal trial court hearing that application denied it on grounds that the Second Circuit does not permit section 1782 to be employed in support of private commercial arbitrations like the one in which Guo was participating.

Guo subsequent appealed that ruling to the Second Circuit, hoping the court would overrule its 1999 decision in Nat’l Broad. Co., Inc. v. Bear Stearns & Co.,3 which concluded that section 1782 cannot be used in support of private commercial arbitrations.

II. Section 1782 and discovery in aid of foreign proceedings

Section 1782 is a United States federal statute that allows federal courts to order persons or entities within their jurisdiction to provide documentary and testimonial evidence to be used in proceedings conducted outside the United States before a “foreign or international tribunal.”4

While versions of section 1782 have existed for over 150 years, usage of the statute has increased considerably since the Supreme Court’s seminal decision in 2004 in Intel Corp. v. Advanced Micro Devices, Inc.,5 which reinvigorated interest in section 1782 by clarifying the circumstances in which it could be employed. While the Intel decision clarified the circumstances in which section 1782 could be employed, it nevertheless left open several significant questions with which lower federal courts have struggled, including whether a private commercial arbitral tribunal seated outside the United States constitutes a foreign or international tribunal within the meaning of section 1782.

III. Section 1782 applications in international arbitration

Section 1782 applications can be useful in international arbitrations seated outside the United States because (1) arbitral tribunals seated outside the United States generally lack the ability to issue subpoenas or to compel third parties to provide evidence, and (2) evidentiary gathering procedures in international arbitration are usually more limited than in many common law court systems.

Section 1782 can be used in support of an arbitration seated outside the United States, however, only if the arbitral tribunal qualifies as a foreign or international tribunal for section 1782’s purposes. To date, this unsettled question has turned on whether the arbitration at issue is an investor-state arbitration or a private commercial arbitration, as well as the court to which the section 1782 application has been brought.