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.
A. Investor-state arbitrations
Federal courts in the United States have generally agreed that investment treaty arbitrations satisfy section 1782’s foreign tribunal requirement because “arbitrations pursuant to…Investment Treaties are not merely private arrangements,” but are arbitrations that are “sanctioned by their governments.”6 Consequently, if all other factors are equal, section 1782 applications in support of investment treaty arbitrations are relatively uncontroversial from a U.S.-court perspective.
B. International commercial arbitrations
Section 1782 applications in support of private international commercial arbitrations are more problematic, however, and federal appellate courts have split on whether section 1782 can be used to support them, because courts have disagreed whether private commercial arbitral tribunals qualify as foreign or international tribunals for section 1782’s purposes. That split has firmly crystalized over the previous year, with two federal circuits expressly holding for the first time that section 1782 can be used to support private commercial arbitrations, and the Second Circuit now clearly reaffirming its view that section 1782 cannot be used in that fashion.
The Second Circuit (which includes New York and Connecticut) and Fifth Circuit (which includes Texas and Louisiana) both previously have held that section 1782 applications cannot be brought in support of private international commercial arbitrations.7 Both courts have held in pre-Intel decisions that section 1782’s foreign tribunal requirement does not extend to private arbitral tribunals established by contract.8
In September 2019, in a groundbreaking decision, the Sixth Circuit (which includes Michigan, Ohio, and Tennessee) rejected the Second and Fifth Circuit decisions in In re Application to Obtain Discovery for Use in Foreign Proceedings (FedEx) and held that section 1782 can be employed in support of private commercial arbitrations.9 To reach that conclusion, the Sixth Circuit specifically found that there is “no reason to doubt that the word ‘tribunal’ includes private commercial arbitral panels established pursuant to contract and having the authority to issue decisions that bind the parties.”10
In March of this year, the Fourth Circuit joined the Sixth Circuit and similarly held in Servotronics that a private commercial arbitral tribunal seated outside the United States is indeed a foreign or international tribunal within the meaning of section 1782.11 In reaching that conclusion, the Fourth Circuit expressly rejected the reasoning of the Second Circuit in Nat’l Broad. Co. as well.
While the Sixth and Fourth Circuits were the first federal appellate courts to uphold that conclusion, they were not first to reach it. In 2012 and 2014, in a noteworthy series of decisions, the Eleventh Circuit (which includes Florida and Georgia) first held that section 1782 could be used in support of private commercial arbitrations seated outside the United States,12 but later vacated and superseded its own decision with one that allowed the section 1782 application, but did so in support of a reasonably contemplated foreign court proceeding rather than an arbitration.13 This series of decisions left section 1782’s status in the Eleventh Circuit for private commercial arbitrations unsettled.
District courts around the country have also reached conflicting conclusions. Many have allowed section 1782 applications in support of private arbitrations.14 Many others, however, have held that private international arbitrations do not satisfy section 1782’s foreign tribunal requirement.15 In some instances, district courts within the Second Circuit have even reached inconsistent conclusions.16
Consequently, in recent years, the viability of a section 1782 application in support of a private commercial arbitration has generally depended upon the state of the law in the jurisdiction to which the application was made, as well as the views of the individual judge charged with ruling on the application.
Anticipation that the Second Circuit might overrule Nat’l Broadcasting Co. in Hanwei
Many practitioners anticipated that the Second Circuit might overrule the Nat’l Broadcasting Co. decision in Hanwei on grounds that the 2004 Supreme Court Intel decision had changed the playing field and rendered National Broadcasting Co. obsolete. Those projections proved inaccurate, however, as the Second Circuit expressly concluded in Hanwei that despite the Intel decision, “NBC’s holding remains good law,” and that “NBC remains binding law in…[the Second] Circuit.”17 Consequently, the Second Circuit rejected any suggestion that Intel had impacted its prior rulings, and instead concluded that it remained bound by National Broadcasting Co. as a controlling decision.18
Impact of the Hanwei decision
The Hanwei decision is significant for a number of reasons. First, it expressly forecloses for the time being the possibility of bringing a section 1782 application in support of an international commercial arbitration in the Second Circuit, which not only is one of the most significant circuits in the United States but also encompasses the center of the U.S. banking system.
Second, the Hanwei decision reinforces the circuit split that has developed between the Second and Fifth Circuits on the one hand and the Fourth and Sixth Circuits on the other, which dramatically increases the likelihood that the U.S. Supreme Court will take up the certiorari petition that the target in Servotronics has said it will file this fall to challenge the application granted in that matter.
Eyes are now on the Ninth Circuit
With the Second Circuit having reaffirmed its stance, practitioners and parties will now await an anticipated decision from the Ninth Circuit Court of Appeals (which includes California, Washington, Oregon, and Arizona) on whether that court will decide if section 1782 can be employed in support of private commercial arbitrations.
In March of this year in RC-Hainan Holding Company, LLC v. Hu, a federal trial court in the Northern District of California adopted the Sixth Circuit’s reasoning in FedEx and granted a section 1782 petition in support of a different CIETAC arbitration.19 The target in that matter appealed the trial court’s ruling, and that appeal is now pending before the Ninth Circuit. Consequently, the Ninth Circuit will also have an opportunity to weigh in on the debate, and regardless of which way it holds, its decision will only further the likelihood that certiorari will be granted in Servotronics.
Section 1782 can be a tool in any non-U.S. proceeding, and will undoubtedly continue to be a more common feature, at least for the time being, in arbitrations seated outside the United States. Practitioners should closely follow developments in this area to see if the Supreme Court takes up the Servotronics matter, and if so, how it rules.
- Hanwei, No. 19-781 (2d Cir. July 8, 2020).
- Servotronics, 954 F.3d 209 (4th Cir. 2020). For a detailed discussion of the Servotronics decision, see our client alert dated 13 April 2020.
- Nat’l Broad. Co., 165 F.3d 184, 191 (2d Cir. 1999).
- 28 U.S.C. section 1782(a) (2018).
- Intel, 542 U.S. 241 (2004).
- Islamic Republic of Pakistan v. Arnold & Porter Kaye Scholer LLP, No. MC 18-103 (RMC), 2019 WL 1559433, at *7 (D.D.C. Apr. 10, 2019); see Nat’l Broad. Co., 165 F.3d at 190 (explaining that section 1782 was meant to apply to governmental and intergovernmental tribunals); Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880, 882 (5th Cir. 1999) (concluding same); see also In re Mesa Power Group, LLC, 878 F. Supp. 2d 1296, 1307 (S.D. Fla. 2012) (allowing section 1782 application in support of a NAFTA arbitration).
- See Nat’l Broad. Co., 165 F.3d at 191 (denying section 1782 application brought in support of an ICC arbitration); Biedermann, 168 F.3d at 883 (rejecting section 1782 application brought in support of an SCC arbitration).
- See Nat’l Broad Co., 165 F.3d at 191; Biedermann, 168 F.3d at 883. In 2009, the Fifth Circuit reaffirmed its view that section 1782 may not be employed in support of a private international arbitral tribunal. See El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 Fed. Appx. 31, 33-34 (5th Cir. 2009) (holding that Biedermann remains good law because it was not impacted by Intel and could not be overruled by the El Paso court for procedural reasons).
- FedEx, 939 F.3d 710, 723 (6th Cir. 2019).
- 954 F.3d 209 (4th Cir. 2020).
- See In re Consorcio Ecuatoriano de Telecomunicaciones S.A., 685 F.3d 987, 990 (11th Cir. 2012).
- In re Consorcio Ecuatoriano de Telecomunicaciones S.A., 747 F.3d 1262, 1269-70 & n.4 (11th Cir. 2014).
- See, e.g., In re Owl Shipping, LLC, No. CIV.A. 14-5655 AET, 2014 WL 5320192, at *2 (D.N.J. Oct. 17, 2014); In re Babcock Borsig, 583 F. Supp. 2d 233, 238-40 (D. Mass. 2008); Comisión Ejecutiva, Hidroélectrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-mc-00135-GMS, 2008 WL 4809035, at *1 (D. Del. Oct. 14, 2008); In re Hallmark Capital Corp., 534 F. Supp. 2d 951, 952 (D. Minn. 2007); In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1222 (N.D. Ga. 2006); In re Pinchuk, No. 13-22857-MC-GOODMAN, 2013 U.S. Dist. LEXIS 147864, at *5-6 (S.D. Fla. Sept. 20, 2013).
- See, e.g., Norfolk Southern Corp. v. Gen. Sec. Ins. Co., 626 F. Supp. 2d 882, 884-86 (N.D. Ill. 2009); In re Dubey, 949 F. Supp. 2d 990, 993-96 (C.D. Cal. 2013); In re Application of Operadora DB, S.A. de C.V., No. 6:09-cv-383-Orl-22GJK, 2009 WL 2423138, at *8-12 (M.D. Fla. Aug. 4, 2009); In re Arbitration in London, England, 626 F. Supp. 2d 882, 885-86 (N.D. Ill. 2009).
- Compare, e.g., In re Ex parte Application of Kleimar N.V., 220 F. Supp. 3d 517, 521 (S.D.N.Y. 2016) (“The Court also finds that the LMAA is a ‘foreign tribunal’ within Section 1782 [notwithstanding that] the Second Circuit has previously excluded private foreign tribunals from the scope of qualifying Section 1782 proceedings.”), with In re Petrobas Sec. Litig., 393 F. Supp. 3d 376, 385 (S.D.N.Y. 2019) (holding private international arbitral tribunals are not foreign tribunals under section 1782).
- Hanwei, slip op. at 15.
- Notably, the Second Circuit’s rationale in Hanwei was extremely similar to the Fifth Circuit’s conclusions in the 2009 decision in El Paso.
- 19-MC-80277, 2020 U.S. Dist. LEXIS 32125 (N.D. Cal. Feb. 25, 2020).
Client Alert 2020-446