Practitioners of international arbitration are usually highly critical of U.S.-style discovery and try to avoid it whenever possible, which makes the recent decision of In re Ex Parte Application of Kleimar N.V., No. 16-MC-355, 2016 WL 6906712 (S.D.N.Y. Nov. 16, 2016) that much more interesting. There, the District Court for the Southern District of New York (SDNY) decided that the London Maritime Arbitration Association, a private association, is a "tribunal" with respect to 28 U.S.C.A. § 1782 (§ 1782) and, therefore, binds the tribunal and the parties to an arbitration before it can seek U.S.-style discovery in federal court.
What is Section 1782?
Section 1782 governs the production of evidence in the United States for use in a foreign proceeding. It grants exclusive subject matter jurisdiction to federal courts to rule on discovery applications submitted under the statute.
To be entitled to discovery under §1782, the applicant must meet a three-prong test:
1. The "person" from whom discovery is sought must "reside" or be "found" in the district of the court in which the application is made;
2. The request or application must be made "by a foreign or international tribunal or upon the application of any interested person;" and
3. The evidence sought must be "for use in a proceeding in a foreign or international tribunal."
Lancaster Factoring Co. Ltd. v. Mangone, 90 F.3d 38, 41 (2d Cir. 1996)
Facts and Procedural History of In Re Kleimar
Kleimar and Dalian were engaged in a series of arbitrations in London before the London Maritime Arbitration Association (LMAA). In October 2016, Kleimar filed an ex parte application to obtain discovery from the SDNY for use in the London Arbitration. The court granted Kleimar's application and allowed Kleimar to seek discovery of Vale and certain other persons. Kleimar thereafter served Vale with a subpoena and Vale Responded with another action in the SDNY, the instant case—a motion to quash that subpoena and vacate the discovery motion previously granted.
As a result, the question before the court was: "Whether the LMAA tribunal, a private arbitral tribunal, is a 'tribunal'" for purposes of § 1782."
Holding and Reasoning
The district court noted that other courts in the Second Circuit had ruled that private foreign arbitrations did not qualify for discovery under § 1782, but that these courts had not yet considered the Supreme Court's decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 124 S. Ct. 2466, 159 L. Ed. 2d 355 (2004).
In Intel, the United States Supreme Court considered two questions: (1) does Section 1782 of Title 28 of U.S. Code authorize a federal district court to compel the release of material for use in a "foreign tribunal" when the foreign tribunal itself is unwilling to demand production of the material?; and (2) does Section 1782 authorize a federal district court to compel the release of material for a fact-finding investigation by the directorate general of the European Commission on the theory that the information may eventually lead to an investigation by a foreign tribunal? Id.
In Intel, the Supreme Court ruled that just because a foreign tribunal was unwilling to demand certain documents did not mean that those tribunals would be unwilling to accept them if provided by other means. By permitting, but not forcing, American judges to allow discovery of certain documents, Congress allowed judges to exercise their discretion to decide whether a foreign tribunal would be receptive to the documents at question. The Court also ruled that it would be impractical to limit the fact-finding to only the actual trial before a foreign tribunal because, in cases like this one, the foreign tribunal does not gather evidence itself but instead relies on the evidence presented to the investigatory commission (in this case the directorate general).
As a result, though it did not explicitly say so, the district court in Kleimar appears to have considered the Intel ruling as support for the proposition that, in a given case, it is up to the judge, at his or her discretion, to assess what is a foreign tribunal, and whether § 1782 provides access to "U.S. style discovery." This ruling is in direct conflict with the decision in National Broadcasting Corp. v. Bear Stearns & Co., 165 F.3d 184, 191 (2d. Cir. 1999). Though not definitive, Kleimar seems to indicate a departure from NBC as to what future courts in the Second Circuit will consider to be a foreign or international tribunal.
The Kleimar decision demonstrates that the definition of a foreign tribunal under § 1782 has not been decisively determined. Accordingly, those involved in a foreign arbitration who need more discovery than the foreign tribunal will permit should consider whether they can obtain such discovery by making application to a federal court under § 1782.