After more than 20 years of silence on the subject, the Second Circuit ruled on July 8, 2020 that 28 U.S.C. § 1782 (Section 1782) does not permit discovery for use in private international arbitrations, holding that the Court’s previous ruling in National Broadcasting Corp. v. Bear Stearns (NBC) remains good law. The Court also considered whether the arbitral tribunal in question, a China International Economic and Trade Arbitration Commission (CIETAC) tribunal, was “functionally” a state-sponsored tribunal that could, under the Second Circuit’s reasoning, qualify for Section 1782 discovery. Answering that question in the negative, the Court affirmed the district court’s denial of the discovery application.
The Second Circuit’s decision deepens a circuit split between the Fourth and Sixth Circuits, which permit parties to private international arbitrations to seek discovery under Section 1782, and the Second and Fifth Circuits, which do not, and increases the likelihood that the Supreme Court will resolve the disagreement. The Second Circuit’s reasoning may also have implications for the availability of Section 1782 discovery in aid of arbitrations conducted pursuant to bilateral investment treaties (BIT arbitrations).
Background
Section 1782 authorizes US courts to order US-style discovery (1) if an “interested person” seeks documents or testimony, (2) from a person who “resides or is found” in the court’s district, (3) “for use in a proceeding in a foreign or international tribunal.”[1] It can be a powerful tool for international litigants, as it allows for potentially broader discovery than is typically available in most arbitral proceedings.
In 1999, the Second Circuit held in NBC that private international arbitrations do not qualify for Section 1782 discovery. The NBC court contrasted private international arbitral tribunals with state-sponsored tribunals created by intergovernmental agreement, and found that Section 1782 was available only in aid of state-sponsored arbitrations. Shortly thereafter, the Fifth Circuit agreed, in Republic of Kazakhstan v. Biedermann International. Then, in 2004, the Supreme Court decided Intel Corp. v. Advanced Micro Devices, Inc. (Intel), its only decision interpreting Section 1782. The availability of Section 1782 discovery for private international arbitrations was not at issue in Intel; however, the Supreme Court referred in dicta to “arbitral tribunals” as examples of “tribunals” that could qualify for Section 1782 discovery.
Over the past sixteen years, district courts around the country have wrestled with whether a private international arbitration tribunal is a qualifying “foreign or international tribunal” within the meaning of Section 1782, especially in light of Intel. Within the Second Circuit, most district courts have permitted discovery for private international arbitrations, concluding that NBC could not be reconciled with Intel’s reasoning. Other district courts within the Second Circuit disagreed, holding that Intel did not overrule NBC. Outside the Second Circuit, the pendulum also appeared to be swinging towards allowing Section 1782 discovery in aid of private international arbitrations. In September 2019, in a case successfully litigated by Freshfields, the Sixth Circuit became the first circuit court to hold that Section 1782’s plain meaning covers private international arbitration tribunals, and expressly rejected the Second and Fifth Circuit’s pre-Intel cases holding otherwise. The Fourth Circuit followed suit in March of this year, also allowing discovery in aid of a private international arbitration.
The Second Circuit’s Hanwei Guo decision
The Second Circuit’s Hanwei Guo decision stakes out a position on the opposite end of the spectrum, relying largely on the “prior panel” rule, which requires a Second Circuit panel to follow precedent from an earlier panel unless that precedent is overruled by the Supreme Court or the Second Circuit sitting en banc. The Court first considered whether its prior holding in NBC was in tension with Intel. The Second Circuit concluded NBC was consistent with Intel’s reasoning, and thus held that NBC remained binding circuit precedent. The Hanwei Guo Court did not engage with the Sixth Circuit’s criticism of NBC’s interpretation of Section 1782.
After holding that NBC remained good law, the Court evaluated whether the Chinese arbitration panel at issue in the case, which was operating under the auspices of CIETAC, could be considered a state-sponsored arbitral tribunal. The Second Circuit weighed a number of functional factors, including:
- the degree of control that a state or intergovernmental body has over the internal direction and governance of the arbitral body;
- the degree to which a state can intervene to alter an arbitral award or other decision from the tribunal;
- whether the tribunal has jurisdiction outside of the parties’ consent; and
- whether parties select their own arbitrators.
Considering these factors, the Court concluded that CIETAC arbitration functions in the way that private international arbitration tribunals do, and is therefore not a state-sponsored tribunal. Thus, the Second Circuit concluded the CIETAC arbitration fell outside the scope of Section 1782.
Impact: Circuit split, but more decisions to come
Hanwei Guo resolves the lower courts’ disagreement as to the impact of Intel on NBC. The decision also creates a clear circuit split with the Fourth and Sixth Circuits on whether private international arbitrations qualify for Section 1782 discovery. The Second Circuit’s decision is unlikely to be the last word on the matter, as similar cases are currently pending in the Third, Seventh and Ninth Circuits. Moreover, in light of the Second Circuit’s heavy reliance on the prior panel rule, it is possible that Hanwei Guo will seek review by the Second Circuit sitting en banc. Finally, the circuit split also increases the likelihood of Supreme Court review.
In recent years, we have seen Section 1782 deployed in connection with BIT arbitrations. A number of courts have considered that these tribunals, which have some functional similarities with private international arbitration tribunals but are given jurisdiction by treaties agreed between states, are state-sponsored and therefore eligible for Section 1782 discovery. While this issue was not squarely presented to the Second Circuit in Hanwei Guo, the Court’s dicta on this point is inconclusive, and will likely be read by future litigants as both supporting and restricting the availability of Section 1782 discovery in aid of BIT arbitrations.
The authors thank Thomas Walsh, Olivia Greene and Sarah Bashadi for their contributions to this alert.
[1] 28 U.S.C. § 1782(a).
