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Should US courts force discovery in foreign arbitrations?

| Apr 19, 2021 | International Commercial Litigation |

In litigation, both sides are required to provide responsive answers to requests for documents and other information. This process is called “discovery,” and it can be the most crucial part of the litigation process.

The basic idea is that each side has broad subpoena authority which they can use to uncover information the other side controls. Ideally, there are no surprises in litigation, as each side has used its subpoena power thoughtfully and gathered all relevant evidence.

When one party is not fully responsive to the other party’s requests, the other party can ask the court to order a full response. This is only true in litigation, however, where a court is the ultimate authority.

Or is it? The U.S. Supreme Court recently agreed to hear a case involving discovery during an international arbitration. At issue is a dispute between U.S.-based Servotronics, which manufactured a metering valve component in the engine of the 787-9 Boeing Dreamliner, and U.K.-based Rolls-Royce PLC, which manufactured the engine as a whole.

In 2016, an engine tailpipe caught fire at a Boeing testing facility. The fire caused $12 million in damages to the aircraft, which Rolls-Royce received through its insurer. However, Rolls-Royce blamed Servotronics for the incident and sought repayment from that company.

The parties entered into arbitration in England. At a certain point, Servotronics claimed that Rolls-Royce and Boeing were withholding documentary evidence during the discovery process.

Could the remedy be in a U.S. court?

Finding no remedy available from the arbitrator, Servotronics filed a claim in the U.S. District Court for the Northern District of Illinois in Chicago. The company cited a federal statute called Section 1782, which governs how federal courts are to force compliance with discovery in international disputes.

In 1964, Section 1782 was edited to read that U.S. courts had jurisdiction over discovery matters “in a proceeding in a foreign or international tribunal.” Previously, it had read, “in any judicial proceeding pending in any court in a foreign country.”

Over the years, the federal circuits have read Section 1782 in contradictory ways. The Seventh Circuit, which governs Illinois, overruled the district court’s order for discovery and granted Rolls-Royce’s motion to quash the request.

The Seventh Circuit’s position is in line with its sister courts in the Second and Fifth Circuits. However, courts in the Fourth and Sixth circuits have ruled the opposite way. Therefore, Servotronics filed for a write of certiorari to have the Supreme Court make the final determination.

At heart, the dispute is about whether the language of Section 1782 applies to private commercial arbitration proceedings or not. It seems clear that, in 1964, Congress meant to expand the courts’ power to non-judicial proceedings, but did it mean arbitrations, too?

Should U.S. courts have the power to order discovery in foreign arbitrations at all?

The Supreme Court, as is usual, provided no commentary when it agreed to hear the case, and no date for oral arguments has yet been set.