On March 22, 2021, the U.S. Supreme Court granted certiorari in the case of Servotronics, Inc. v. Rolls Royce PLC and Boeing to address a circuit split over 28 U.S.C. § 1782. Under § 1782, a district court can order U.S. style discovery for “a proceeding in a foreign or international tribunal.” The issue at present is whether a private international arbitration qualifies under the language of § 1782. The Fourth and Sixth Circuits have held § 1782 applies to private international arbitration, while the Seventh, Fifth, and Second Circuits have held the opposite. The Supreme Court has never examined whether § 1782 grants a district court permission to order discovery in a private international arbitration until now.
The Case
In 2016, an engine fire occurred on a Boeing 787 Dreamliner. Rolls Royce constructed the engine in question and settled with Boeing for $12.8 million. Servotronics, a subcontractor of Rolls Royce, challenged their culpability, claiming Servotronics’ work was not the cause of the fire. Rolls Royce eventually commenced arbitration, seeking reimbursement of the $12.8 million against Servotronics after independent resolution no longer seemed viable. The arbitration is currently pending under Rules of the Chartered Institute of Arbitrators in England.
In anticipation of the pending arbitration, Servotronics obtained depositions from Boeing employees in South Carolina, located in the Fourth Circuit, and sought documents in Illinois, located in the Seventh Circuit, via § 1782. The depositions were granted in the Fourth Circuit while the Seventh Circuit affirmed the District Court’s decision to quash the subpoena for documents. For its decision, the Seventh Circuit cited the legislative history of § 1782, indicating Congress did not mention private dispute resolutions while drafting the law, thus implying these types of proceedings were not considered under the legislation. This is the first time the Supreme Court will consider whether private international arbitrations are subject to § 1782 and the decision could affect how businesses approach disputes moving forward.
International Arbitration v. U.S. Discovery Processes
Limited discovery is one reason why a business would choose the route of private international arbitration as opposed to U.S. based litigation. U.S. discovery is liberal and allows parties to gain access to a broad spectrum of testimony, statements, or documents, while foreign proceedings are generally more restrictive on what is discoverable. Because of this, the U.S. style of discovery is typically lengthier in nature and can expand the cost of the proceeding. A business can conceivably save itself from the delay and additional expense by choosing international arbitration in a foreign jurisdiction.
Arbitration is also a creature of consent. Parties to an arbitration have a level of autonomy that litigation does not provide and are able to specify various aspects of the proceeding in an arbitration agreement. This autonomy can include clarifying what is and is not discoverable. Allowing § 1782 to encompass private international arbitration could potentially throw a wrench into this autonomy as arbitration agreements are not necessarily guaranteed to hold up in U.S. courts, depending on the specific situation.
For clarification, § 1782 can only apply when the person or entity from whom discovery is sought resides in a district within the United States. This discovery typically follows the default process under § 1782 and uses the United States Federal Rules of Civil Procedure, instead of the processes followed by the foreign tribunal in question. § 1782 also does not limit the discovery to only the parties involved in the pending arbitration, so long as one or more of the parties resides in the U.S. As in the case of Servotronics, Boeing is not party to the arbitration and yet, according to the Fourth Circuit, § 1782 permits U.S. style discovery of Boeing. Allowing such broad discovery of parties partaking and parties not involved in the arbitration could present a conundrum for U.S. based entities.
Implications
The Supreme Court affirming that § 1782 includes private international arbitration would have far reaching consequences, including undercutting the benefit provided by arbitration for U.S. businesses but more importantly, the strategic advantage gained by foreign corporations. There also stands a chance of U.S. business shying away from arbitration and using other forms of non-binding dispute resolution. Lastly, if § 1782 were to include private international arbitration, parties could lose some of the consent and autonomy that goes with an arbitration proceeding.
As previously discussed, there are benefits of arbitration including cost and time savings. § 1782 could wipe out these benefits and cause a private international arbitration to look more like a U.S. based litigation proceeding. The pain of losing time and money would be felt by both parties involved, and potentially non-parties as well, because while a U.S. company would be on the hook to produce discovery, the foreign party is still paying for attorney fees and the costs of delaying the proceeding.
Additionally, § 1782 would put any U.S. entity party to an arbitration at a severe disadvantage. Only U.S. based entities are subject to § 1782, meaning a foreign party to an arbitration can obtain a wide-array of discovery, while a U.S. party does not have the same tool of discovery within foreign jurisdictions. Without the ability to match the other party involved, a U.S. party’s success in the arbitration proceeding shrinks. The added discovery can also advantage a foreign party in settlements during the arbitration. The uneven keel § 1782 proposes erodes the concepts of consent and party autonomy that arbitration is known for and could cause U.S. businesses to step back from the arbitral process.
There are other forms of dispute resolution outside of arbitration and litigation, such as mediation and negotiations, however these forms are not binding. § 1782 could understandably leave U.S. businesses, party to the arbitration or not, hesitant to move forward with arbitration, leaving the choice of litigation or a non-binding alternative. If litigation is pursued in the U.S., the same discovery problem rears its head, and if a non-binding alternative is chosen, the parties may never agree to a solution, or parties can simply choose not to abide by the settlement without consequence. § 1782 poses quite a predicament and U.S. businesses will need to think long and hard before deciding which avenue they want to take.
Lastly, § 1782 guts the idea of consent and autonomy that arbitration is widely known for. If U.S. entities party to arbitration are subjected to more discovery than what is laid out in the arbitration agreement, it would directly contradict the consent to arbitrate under particular terms and the party autonomy asserted when laying out those terms in the original agreement. Even if the parties dictated in the arbitration agreement that § 1782 does not apply, there is not necessarily a guarantee the language would hold up in a U.S. court. § 1782 runs the risk of frustrating these core tenants of arbitration by sidestepping the typical arbitral procedures.
Including private international arbitration within the meaning of “foreign or international tribunal” under § 1782 could significantly alter how the world views arbitral proceedings and induce sizable repercussions on the infrastructure of arbitration. Until arguments are presented and a decision is made, Servotronics is one worth keeping an eye on.
Author Biography: Jaimee Salgado is a Senior Moderator for the International Law and Policy Brief (ILPB) and a J.D. candidate at The George Washington University Law School. She received a B.S. in Music/Music Management from the University of Colorado at Denver. Prior to law school, she spent near a decade working in the media and advertising industry across the United States. Her interests include international commercial and investment arbitration, and international business law generally.