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28 U.S.C. §1782(a): Second Circuit Reinforces Appeals Court Split Concerning Applicability to Private Commercial Arbitrations

Just as the jurisprudential pendulum appeared to be swinging smoothly in one direction, the Second Circuit declined to get on board and instead pushed back to the future on July 8, 2020 in holding that federal courts may not order discovery, under 28 U.S.C. §1782(a), in support of a foreign private commercial arbitration.  See, Hanwei Guo v. Deutsche Bank Securities, Inc., 2020 U.S. App. LEXIS 21219 (2d Cir. July 8, 2020).  It thus reaffirmed its 1999 decision in National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999).

The statute in question authorizes a federal district court to compel disclosure, usually by a non-party witness, “for use in a proceeding in a foreign or international tribunal.”  In 1999, the Second Circuit held that a commercial arbitration panel established by agreement of private parties, utilizing ICC arbitration rules, was not such a tribunal.  See id. at 191.  But the Court’s confirmation of that holding in 2020, consistent with a still valid 1999 holding by the Fifth Circuit, is at odds with very recent contrary holdings by the Fourth Circuit (in 2020) and the Sixth Circuit (in 2019).  Hence, the U.S. Supreme Court is likely to have the opportunity in the relatively near future to decide the issue definitively.

To date, SCOTUS has only arguably touched on the issue in brief dictum in its 2004 decision concerning the applicability of 28 U.S.C. § 1782(a) in connection with an antitrust dispute that was being adjudicated by a European Commission quasi-judicial governmental agency.  See, Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 258, 124 S. Ct. 2466 (2004).  The Second Circuit acknowledged that that dictum influenced the positions of the Sixth and Fourth Circuits regarding the critical issue.  Indeed, the Court of Appeals acknowledged that district courts within the Second Circuit “had split on the question whether [Bear Stearns] remains intact post-Intel.”  2020 U.S. App. LEXIS 21219 at *13.  But the Court of Appeals relied heavily on its longstanding rule that “a three-judge panel is bound by a prior panel’s decision until it is overruled either by this Court sitting en banc or by the Supreme Court.”  Id. at *14, citing Doscher v. Seaport Grp. Sec., LLC, 832 F.3d 372, 378 (2d Cir. 2016).  And the Court found that the Supreme Court’s Intel dictum was not a sufficient basis to overturn the Bear Stearns holding.  See id. at *14.

For now, the prospects of a party seeking discovery in the U.S. by means of the 28 U.S.C. §1782(a) mechanism for use in a foreign private commercial arbitration are geographically-dependent.  Among other things, “the person from whom discovery is sought [must] reside[ ] (or [be] found) in the district of the District Court to which the application is made….”  Id. at *7.  This decision by the Second Circuit is particularly important because of the number, caliber, and types of financial and other commercial companies and personnel that reside or may be found within its geographic jurisdiction.  The value of the §1782(a) mechanism is, for now, diminished accordingly.

Petitioner Guo was an investor in several related music companies -- the “Ocean Entities,” which operated in the Chinese music streaming market, id. at *2 -- that eventually became part of Tencent Music, one of the world’s largest music streaming companies.  By then, however, Guo had sold his shares, allegedly for less than they were actually worth.  Guo claimed that he was the victim of fraud, and he commenced an arbitration in September 2018 against (i) the founder of the companies in which he had invested, (ii) Tencent Music, and (iii) others in a proceeding under the arbitration rules of the China International Economic and Trade Arbitration Commission (“CIETAC”).  The Court of Appeals found that the governing CIETAC rules applied to private arbitrations, pursuant to which CIETAC’s jurisdiction depended entirely on the arbitration agreement between the parties, see id. at *4, and that “in any given arbitration, CIETAC operates independently of the Chinese government..,”  id.

In December 2018, Guo petitioned the U.S. District Court for the Southern District of New York for discovery under 28 U.S.C. §1782(a) from four investment banks, including Deutsche Bank Securities, that had been underwriters in Tencent Music’s October 2018 U.S. IPO.  The District Court denied that application in late February 2019, opining that the Bear Stearns decision was still controlling law, and that the CIETAC tribunal was “closer to a private arbitral body than it is to a governmental…tribunal[ ] or ‘other state-sponsored adjudicatory bod[y]’.”  Id. at *5-*6, citing In re application of Hanwei Guo, 2019 U.S. Dist. LEXIS 29572 (S.D.N.Y. Feb. 25, 2019).

On appeal, Guo argued (i) that the CIETAC arbitration tribunal was a state-sponsored adjudicatory body; and in any case (ii) that private commercial arbitrations are within the scope of 28 U.S.C. §1782(a).  See id. at *6.  

The Second Circuit had not revisited the latter issue since 1999, and the only intervening jurisprudential event of consequence was the Supreme Court’s aforementioned Intel dictum in 2004.  But, as noted above, the Second Circuit saw nothing in that decision that should alter its holding in Bear StearnsSee id at *1-*2.  And the Second Circuit agreed that Guo’s CIETAC arbitration was simply a private international commercial arbitration.  See id. at *2.  Hence, the Court of Appeals affirmed the District Court’s denial of Guo’s discovery petition.  Id. at *24.

In Bear Stearns, the Second Circuit had considered whether a private commercial arbitration in accordance with the rules of the International Chamber of Commerce – a private organization based in Paris – was a proceeding in a “foreign or international tribunal” for purposes of §1782(a).  Id. at *7-*8.  It held that it was not.  Id. at *8.  The Court’s threshold finding was that the relevant statutory text was ambiguous, thus enabling it to examine other evidence such as the legislative history in order to construe the statute.

The Court ultimately relied on (i) the statutory text; (ii) the legislative history of the amended §1782(a); (iii) contemporaneous academic literature upon which Congress had relied at the time of passage of the amendments (supporting the position that the term “tribunals” in §1782(a) “referred particularly to intergovernmental arbitration and other state-sponsored dispute resolution mechanisms,” id. at *9-*10); and (iv) policy considerations that “weigh[ed] strongly in favor of preserving the efficiency and cost-effectiveness of private arbitration..,” id. at *10.  Among other things, the Court concluded that its interpretation of 28 U.S.C. §1782(a) fully supported the aims of the enacting Congress – “that the broad panoply of unilateral, multilateral, international, and novel administrative bodies created by governments in the wake of the Second World War should be provided with assistance in U.S. courts commensurate with the assistance previously afforded to traditional foreign courts.”  Id. at *23.  But not private commercial arbitrations.  See id.

The focal issue is likely to be taken up anew by other federal Courts of Appeal before SCOTUS decides it.  It remains to be seen which way the jurisprudential pendulum swings next.

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