In the recent case of In re Consorcio Ecuatoriano de Telecomunicaciones S.A., v. JAS Forwarding (USA), Inc., Case No. 11-12897, 2012 WL 2369166 (11th Cir. June 25, 2012), the Eleventh Circuit held that private commercial arbitral tribunals fall within the scope of 28 U.S.C. §1782 and ordered §1782 discovery in relation to a domestic private commercial arbitration in Ecuador.
§1782 provides that US district courts may order parties to produce documents or give testimony for use in a “proceeding in a foreign or international tribunal”. §1782 essentially arms parties engaging in foreign or international proceedings with a valuable tactical and evidentiary tool to be used against parties that are themselves or have entities which have a presence in the US. However, the extent to which this tool may be used in the context of private commercial arbitration proceedings has been unclear, until now.
The uncertainty regarding the scope of §1782 stems largely from the lack of clarity regarding the meaning of “tribunal”. Prior to the Supreme Court ruling in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), it was generally accepted (on the basis of Second and Fifth Circuits jurisprudence) that §1782 would not apply to foreign arbitration proceedings. In Intel, the Supreme Court held that European Commission and EU courts dealing with EU competition law and regulatory claims qualified as “tribunals” within the meaning of §1782. As a result, the definition of “tribunal” was expanded, however it was unclear to what extent.
Since Intel, lower federal courts have had difficulty consistently applying the Intel standard to arbitral tribunals. It is this difficulty, together with the fact that, until now, there have been no published federal appellate court decisions considering whether §1782 applies to private commercial arbitration proceedings, which make the Eleventh Circuit’s recent decision so noteworthy.
The Eleventh Circuit’s decision is only binding on the federal courts sitting in the states comprising the Eleventh Circuit – Florida, Georgia and Alabama – and is at most persuasive to other circuits. Moreover and practically speaking, In re Consorcio Ecuatoriano‘s application of §1782 to private commercial arbitrations can only assist those parties which are seeking discovery from entities which have jurisdictional presence in an Eleventh Circuit state. However, the discovery itself can extend to documents which are outside the jurisdiction, so long as they are in the possession of the entity with jurisdictional presence. It remains to be seen whether the Second and Fifth Circuits, which include New York and Texas, respectively, will follow suit.
The Eleventh Circuit’s decision creates an ironic result: on the one hand, the recognition of foreign private commercial arbitral tribunals as tribunals for §1782 discovery is a testament to arbitration being a generally-accepted and legitimate form of dispute resolution. Perhaps it is also indicative of US federal courts becoming more accepting of foreign private dispute resolution procedures. However, in adopting a more internationally-minded approach, US federal courts expose US companies to the risk of having to engage in broad traditional US judicial discovery instead of the limited disclosure which has come to be accepted in international arbitration, even though the seat of the arbitration is outside the US. Additionally, it may prejudice US companies in that they will be subject to broad discovery by virtue of §1782 but will be unable to make reciprocal demands of non-US opponents. This is a point with which tribunals are likely to have to deal in order to ensure a level playing field between the parties.