United States: In Re Application Of Owl Shipping: Does § 1782 Permit Discovery To Aid Foreign Arbitral Proceedings?

The District of New Jersey has issued a recent opinion highlighting a potential resource for parties engaged in foreign arbitral proceedings – the use of 28 U.S.C. § 1782, which allows parties engaged in foreign proceedings to seek discovery in the United States. This Court permitted the discovery in aid of a foreign arbitral proceeding, but courts in other circuits have taken divergent positions as to whether § 1782 permits discovery to aid foreign arbitral proceedings. Parties interested in utilizing this § 1782 resource may be limited by the jurisdiction in which it is sought.

In re Application of Owl Shipping, LLC & Oriole Shipping, LLC

On October 17, 2014, the District of New Jersey issued its opinion in In re Application of Owl Shipping, LLC & Oriole Shipping, LLC, No. 14-5655, 2014 WL 5320192 (D.N.J. filed Oct. 17, 2014), granting the Petitioners' application for depositions and document production under § 1782. The arbitration was before the London Maritime Arbitrators Association ("LMAA") and centered on two separate time-charter agreements allowing Respondent to use Petitioners' vessels. Petitioners claimed that Respondent failed to make required payments and now owes over $1 million to each Petitioner. Petitioners sought the discovery to demonstrate that Respondent acted in bad faith because it knew that it did not have the funds to make the required payments at the time of contracting, which were part of Petitioners' claims before the LMAA.

Under § 1782(a), "[t]he district court in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal . . . [t]he order may be made . . . upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced before a person appointed by the court." Once the statutory requirements are met, the district court may, in its discretion, grant the application. In Intel Corp. v. Advanced Micro Devices, Inc., the Supreme Court explained the factors that a court should consider when deciding whether to grant a § 1782 application:

(1) whether the person from whom the discovery is sought is a participant in the foreign proceeding; (2) the nature of the foreign tribunal, the character or the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance; (3) whether the § 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States; and (4) whether the § 1782 application contains unduly intrusive or burdensome discovery requests.

542 U.S. 241, 247 (2004). The District of New Jersey concluded that the LMAA constituted a "foreign tribunal" under § 1782, relying upon a 2010 opinion from the Southern District of Florida regarding the LMAA. See In re Application of Owl Shipping, 2014 WL 5320192 at *2 (citing Ex rel Application of Winning (HK) Shipping Co. Ltd., No. 09-22659-MC, 2010 WL 1796579 (S.D. Fla. Apr. 30, 2010)). Other cases arising in the Third Circuit have also found that § 1782 permits discovery in support of foreign arbitral proceedings. See Comisión Ejecutiva Hidroeléctrica de Río Lempa v. Nejapa Power Co., LLC, C.A. No. 08-135-GMS, 2008 WL 4809035, *1 (D. Del. Oct. 14, 2008) ("[T]he Supreme Court's decision in Intel (and post-Intel decisions from other district courts) indicates that Section 1782 does indeed apply to private foreign arbitrations.").

Conflicting Precedent

However, a closer examination of the Southern District of Florida decision relied upon for In re Application of Owl Shipping calls into question whether § 1782 should apply to foreign arbitral proceedings. The opinion in Ex rel Application of Winning (HK) Shipping Co. Ltd. recognized that "[s]ince the Intel decision, courts have split as to whether the extension of section 1782 into purely private arbitrations is warranted on the basis that those fora meet the 'tribunal' definition of the statutes" because the Supreme Court did not address that issue in Intel. 2010 WL 1796579, at *6. The Southern District of Florida considered a number of prior cases and determined the key issue is whether foreign private arbitrations are subject to judicial review, and concluded an arbitration before the LMAA meets this test. Id. at *8-*9.

The Eleventh Circuit addressed this issue in June 2012. In re Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 685 F.3d 987 (11th Cir. 2012). There, the court examined the characteristics of the foreign arbitral tribunal at issue and concluded that the "arbitral panel is, in the words of the Supreme Court, 'a first-instance decisionmaker' whose judgment is subject to judicial review, and we therefore 'have no warrant to exclude [it] . . . from § 1782(a)'s ambit.'" Id. at 997. However, in January 2014, the Eleventh Circuit vacated the 2012 decision and issued a new decision that did not reach the issue of whether a foreign arbitration qualifies for § 1782 because two lawsuits in Ecuadorian courts had been filed, thus obviating the need for the Eleventh Circuit to go further. Application of Consorcio Ecuatoriano de Telecomunicaciones S.A., 747 F.3d 1262 (11th Cir. 2014).

Further complicating matters are contrary opinions from the Second and Fifth Circuits, the only other appellate courts to examine the issue, which both held that private foreign arbitration did not qualify for § 1782. The Second Circuit held in NBC v. Bear Stearns & Co., 165 F.3d 184 (2nd Cir. 1999), that § 1782 did not apply to private foreign arbitrations. Similarly, the Fifth Circuit in Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999), refused to extend the reach of § 1782 to private arbitrations. While both opinions were issued prior to Intel, the Fifth Circuit upheld its prior ruling in El Paso Corp. v. La Comisión Ejecutiva Hidroeléctrica Del Río Lempa, 341 Fed. Appx. 31, 34 (5th Cir. 2009). This negative precedent is not insurmountable, however; a District of Connecticut court granted a § 1782 application even though it falls within the Second Circuit. OJSC Ukrnafta, 2009 WL 2877156 at *3. And numerous district courts throughout the country have granted § 1782 petitions in aid of foreign arbitral proceedings. E.g., In re Roz Trading Ltd., 469 F.Supp.2d 1221, 1228 (N.D. Ga. 2006); In re Hallmark Capital Corp., 534 F. Supp. 2d 951 (D. Minn. 2007); In re Babcock Borsig AG, 583 F. Supp. 2d 233 (D. Mass. 2008).

Takeaways

An applicant seeking discovery under § 1782 for foreign arbitral proceedings must pay careful consideration to where it brings its application. "The district court in which a person resides or is found" is the relevant jurisdiction for a § 1782 analysis. 28 U.S.C. § 1782(a); see also In re Application of Owl Shipping, 2014 WL 5320192 at *2 (citations omitted). Given the fractured nature of the precedent, parties seeking discovery (in addition to meeting other requirements) should consider whether they will be making an application in a favorable jurisdiction. Particular note should be made where the district court is within the Second or Fifth Circuit, although this hurdle in not insurmountable, as shown by the opinion the District of Connecticut's opinion in Ukrnafta. In re Application of Owl Shipping now adds another jurisdiction, New Jersey, where foreign arbitral discovery could be sought.

The benefits of § 1782 discovery can be significant, and parties engaged in foreign private arbitration should consider whether the circumstances of their case justify bringing an application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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