Private Foreign Arbitration: Can U.S. Federal Courts Compel Discovery?

BACKGROUND

Section 1782 of Title 28 defines the “scope of discovery that foreign litigants may seek in the United States for use in foreign proceedings.” Specifically, Section 1782(a) authorizes the district court to compel discovery “for use in a proceeding in a foreign or international tribunal.” 

The Supreme Court encountered a Section 1782(a) dispute in the case of Intel Corp. v. Advanced Micro Devices, Inc. (2004). The Court held that Section 1782(a) “authorizes, but does not require discovery assistance,” and the Court decided to “leave it to the courts below to ensure an airing adequate to determine what, if any, assistance is appropriate.” The Court in Intel, however, only considered whether Section 1782(a) discovery would apply to public foreign tribunals; where it concluded that it would. The Court remained silent on whether Section 1782(a) discovery would also apply to private foreign arbitration, leading to the current division among the Circuit Courts. 

THE ISSUE

Is the definition of “foreign or international tribunal” under 28 U.S.C. 1782(a) limited only to state-sponsored public tribunals; or does the definition include discovery for private foreign tribunals as well? In other words, can district court judges compel discovery for private foreign arbitration?

THE SPLIT

The Seventh Circuit recently joined the Second and Fifth Circuits by adopting a narrow interpretation of “foreign or international tribunal” to only include public tribunals and exclude private ones. These circuits conclude that compelling discovery in private foreign disputes would undermine the speedy and cost-effective nature of the arbitration process. In recent years, however, the Fourth and Sixth Circuits have disagreed, opting for a broad interpretation of Section 1782(a). These circuits posit that the purpose of the Section 1782(a) is to foster international cooperation through discovery processes and conclude that district courts should have the discretion to apply Section 1782(a) to all foreign tribunals, both public and private. 

The Second, Fifth, and Seventh Circuits

In September 2020, the Seventh Circuit joined the Second and Fifth Circuits in affirming a narrow interpretation of Section 1782(a). In Servotronics, Inc. v. Rolls-Royce PLC (2020), (“Servotronics II”), the court held that Section 1782(a) “did not authorize the district court to compel discovery for use in a private foreign arbitration.” There was a separate case arising from the same arbitration that came before the Fourth Circuit in March 2020 and is discussed below. In Servotronics II, Rolls-Royce had manufactured an engine for a Boeing aircraft and incorporated a Servotronics valve in the design. The airplane was then destroyed in a fire during testing, and Rolls-Royce settled with Boeing for the loss of the plane. Subsequently, Rolls-Royce, a UK-based corporation, sought indemnification from Servotronics, which was based in the United States. The two companies had a long-term agreement that mandated binding arbitration in a London-based private tribunal called the Chartered Institute of Arbiters (“CIArb”). Servotronics then applied for a Section 1782(a) discovery request that would compel Boeing to produce documents that would be used in the London arbitration. The district court judge ultimately denied this discovery request, finding for Rolls-Royce and Boeing.

In interpreting Section 1782(a), the Seventh Circuit affirmed the district court ruling, stating that “foreign or international tribunal” should be defined as “a governmental, administrative, or quasi-governmental tribunal operating pursuant to the foreign country’s practice and procedure.” This definition would consequently exclude any private foreign arbitrations. The Seventh Circuit rejected the Fourth and Sixth Circuit’s broad definition of “foreign and international tribunals,” which included private arbitration. The Seventh Circuit noted that if the ambiguity of the word “tribunal” was interpreted broadly, this could expand the ability of federal courts to compel discovery in foreign arbitration past what is normally allowed in domestic arbitration. 

In January 1999, the Second Circuit was one of the first to confront an issue concerning Section 1782(a) in NBC v. Bear Stearns & Co. (1999). In NBC, the plaintiff, US-based news corporation NBC was involved in a Mexican arbitration with Mexican television broadcasting company Azteca, of which Bear Sterns was an investor. In interpreting Section 1782(a), the Second Circuit noted that “although the phrase ‘foreign or international tribunal’ does not unambiguously exclude private arbitral panels, neither does it unambiguously include them.” The court then concluded that the phrase, considered in the context of statutory and legislative history, is limited to public foreign arbitration and not private tribunals. Two months after the Second Circuit’s decision in NBC, the Fifth Circuit adopted this narrow interpretation of Section 1782(a) in Republic of Kazakhstan v. Biedermann Int’l (1999). The Fifth Circuit held that the statute was “not intended to authorize resort to United States federal courts to assist discovery in private international arbitrations.” The court highlighted the concern that allowing for discovery in private arbitrations would “complicate and undermine” the entire international arbitration process. 

The Fourth and Sixth Circuits

The Fourth and Sixth Circuits have both held that a broad definition of Section 1782(a) is more appropriate. In March 2020, the Fourth Circuit analyzed the scope of 1782(a) in the Servotronics, Inc. v. Boeing Co. (2020), (“Servotronics I”), a case arising from the same arbitration dispute that would later come before the Seventh Circuit. The Fourth Circuit came to a very different result than the Seventh Circuit, reasoning that the “district court functions effectively as a surrogate for a foreign tribunal by taking testimony and statements for use in the foreign proceeding” under Section 1782(a). The Fourth Circuit concluded that the application of Section 1782(a) should be determined by district courts and not parties, so the district courts should possess the ability to compel discovery for private foreign arbitrations. 

The Fourth Circuit’s decision in Servotronics I aligns with the Sixth Circuit’s September 2019 decision in Abdul Latif Jameel Transportation Co. v. FedEx Corp. (2019). In Abdul, the Sixth Circuit held that the word “tribunal” should be interpreted broadly and the “district court’s authority to compel discovery for use in foreign litigation extends to private foreign arbitrations.” The court stressed that the Supreme Court decision in Intel made the application of Section 1782(a) discretionary, and the broad interpretation would be best for giving this discretion to the district courts. 

LOOKING FORWARD

At this point, Rolls-Royce stated that it intended to file a petition for writ of certiorari to the Supreme Court. Whether or not the Servotronics case moves forward, the Court should review the interpretation of Section 1782(a) at some point, resolving the confusion left by Intel. If the Supreme Court opted for a broad interpretation of Section 1782(a), as given by the Fourth and Sixth Circuits, there would likely be a substantial increase in discovery for foreign private arbitrations, increasing costly litigation and further burdening the courts. 

Additionally, there is a pending case, HRC-Hainan Holding Co., LLC v. Yihan Hu (2020), before the Ninth Circuit that concerns a Section 1782(a) dispute involving discovery into a Chinese in vitro fertilization project that is before a Chinese arbitration commission. So, it will also be interesting to see what the Ninth Circuit decides and whether a decision, in this case, comes before a Supreme Court ruling on this issue.

 

Standardizing the Standard: Determination of “Habitual Residence” Under the Hague Convention

BACKGROUND

In 1980, the United States and the member states of the Hague Conference on Private International Law unanimously adopted the Convention on the Civil Aspects of International Child Abduction. In 1988, Congress passed the Hague Convention’s enabling statute, the International Child Abduction Remedies Act. 22 U.S.C. §§ 9001–9011. In doing so, Congress reiterated the Convention’s purpose “to help resolve the problem of international abduction and retention of children” and to “deter such wrongful removals and retentions.” 22 U.S.C. § 9001(a)(4). Accordingly, Congress empowered “courts in the United States to determine only rights under the Convention and not the merits of any underlying child custody claim.” 22 U.S.C. § 9001(b)(4). As a result, the determination of a child’s “habitual residence” is the fundamental question in any case under the Hague Convention. The answer controls whether the Convention applies, which nation’s laws determine custodial or access rights, and whether a child must be sent across international borders to another country for adjudication of those rights.

THE ISSUE

Whether a district court’s determination of “habitual residence” under the Hague Convention should be reviewed:

  1. De novo, as seven circuits have held;
  2. Under clear-error review, as the U.S. Courts of Appeals for the 4th and 6th Circuits have held; or
  3. Under a deferential version of de novo review, as the U.S. Court of Appeals for the 1st Circuit has held.

THE SPLIT

Among the ten circuits that have addressed the issue, three different standards have emerged for reviewing a district court’s habitual-residence determination.

Seven circuits apply de novo review to a district court’s determination of habitual residence, thus reviewing the district court’s underlying findings of historical fact for clear error. The Second Circuit explained that the habitual residence determination is heavily fact-dependent, but the question of whether the pertinent facts satisfy the legal standard is a question of law to be reviewed de novo. Guzzo v. Cristofano (2013). Similarly, the Third Circuit held that the “determination of habitual residence is not purely factual, but requires the application of a legal standard, which defines the concept of habitual residence, to historical and narrative facts.” Feder v. Evans-Feder (1995). Keeping in line with this approach, the Third Circuit applies “a mixed standard of review, accepting the district court’s historical or narrative facts unless they are clearly erroneous, but exercising plenary review of the court’s choice of and interpretation of legal precepts and its application of those precepts to the facts.” The Fifth Circuit agrees, explaining that such a determination presents a mixed question of law and fact subject to de novo review. Larbie v. Larbie (2012). The Seventh, Eighth, Ninth, and Eleventh Circuits also apply the same approach — reviewing the underlying historical facts for clear error, but reviewing the ultimate determination of habitual residence de novo. Koch v. Koch (7th Cir. 2006); Silverman v. Silverman (8th Cir. 2003); Mozes v. Mozes (9th Cir. 2001); Ruiz v. Tenorio (11thCir. 2004).

In contrast, the Fourth Circuit found that the crux of the habitual residence determination is whether the district court’s finding is clearly erroneous. Maxwell v. Maxwell (2009). Almost a decade later, the Sixth Circuit joined the Fourth Circuit in applying that deferential standard. The Sixth Circuit held in Taglieri v. Monasky (2018) that it would “treat the habitual residence of a child as a question of fact.” Emphasizing the comparative advantages of trial and appellate courts and the highly deferential nature of clear-error review, the court uniquely articulated that it would affirm the district court’s habitual-residence determination “unless the fact findings ‘strike us as wrong with the force of a five week-old, unrefrigerated dead fish.’” The court then deferred not only to the district court’s findings of historical fact but also to its determination that those facts were legally sufficient to establish a child’s habitual residence.

The First Circuit adopted a hybrid approach. Although it applies clear-error review to historical facts underlying the habitual-residence determination and de novo review to the district court’s resolution of that question, the First Circuit gives some deference to the district court’s determination. According to the First Circuit, it is fairly difficult in Hague Convention litigation “to attach an abstract label to a complex of discrete facts, some of which push each way.” Nicolson v. Pappalardo (2010). With this approach, the court will reverse a “district court’s raw fact findings . . . only for clear error,” giving some form of deference to the district court’s application of the standard in determining habitual residence.

LOOKING FORWARD

When Congress adopted legislation implementing the Convention, it emphasized “the need for uniform international interpretation of the Convention.” 22 U.S.C. § 9001(b)(3)(B). Ten circuits applying three approaches is not the uniformity Congress intended. Fortunately, the Supreme Court found a proper vehicle to address the lack of uniformity in Monasky v. Taglieri. Set for oral argument on December 11, 2019, the Supreme Court will shed light on which standard of review a Court of Appeals should apply to a district court’s determination of habitual residence under the Hague Convention. In deciding Monasky, the Sixth Circuit created an additional split that the Supreme Court will also examine later this year. That issue will be discussed in another Sunday Split.

Customary International Law: When does this binding federal law apply?

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What is it?

Customary international law, also known as public international law, is the body of law determined by the “general and consistent practice of states followed by them from a sense of legal obligation.” Restatement (Third) of the Foreign Relations Law of the United States S102(c)(2). In other words, international law need not arise exclusively from treaties and formal international agreements; it may also arise from an aggregate of states’ actions, states’ official statements, and international legal obligations arising from mutual concerns.

Why do I care?

Whereas treaties and other international agreements are not necessarily self-executing (in that they often require Congressional approval or specific statutes to become binding US law), customary international law is a binding, valid part of United States federal common law. See The Paquete Habana (S.Ct. 1900); Banco Nacional de Cuba v. Sabbatino (S.Ct. 1964). However, this body of law is for the most part completely inaccessible.

Bringing a cause of action based on customary international law is nearly impossible, and prevailing on such an action carries an even slimmer chance of success. Based a cursory review of Federal case law, one could easily come to the conclusion that the only scenarios under which customary international law can successfully be used to uphold individual rights are those that involve fish, kidnapped anglers, and the Spanish-American War. The Paquete Habana (S.Ct. 1900).

So why the lack of application?

There is no question that customary international law is a valid part of federal common law. Even the Rehnquist court, despite its ideological fault-lines, found consensus on the validity of customary international law as a part of federal common law in Sosa v. Alvarez-Machain (2004):

For two centuries we have affirmed that the domestic law of the United States recognizes the law of nations. It would take some explaining to say now that federal courts must avert their gaze entirely from any international norm intended to protect individuals.

Unfortunately one significant problem was – and continues to be – a rather important issue. How do we define what, exactly, customary international law dictates?

The Split

Modern Second Circuit vs. Ye Olde SCOTUS

Customary international law was first recognized as a part of federal common law in the landmark case of The Paquete Habana (S.Ct. 1900), and later upheld for the post-Erie world by Banco Nacional de Cuba v. Sabbatino (S.Ct. 1964). In the former case, two Spanish fishing boats were captured by the naval blockade surrounding Cuba during the Spanish-American war. The ships and their cargo were taken back to Florida where they were sold at auction as “spoils of war.” The Court, in ruling that such a seizure was a violation of customary international law relied upon the following treatise by Carlos Testa a captain in the Portuguese navy and a legal scholar of the time:

Nevertheless, in this, customary law establishes an exception of immunity in favor of coast fishing vessels. Fishing is so peaceful an industry, and is generally carried on by so poor and so hardworking a class of men, that it is likened, in the territorial waters of the enemy’s country, to the class of husbandmen who gather the fruits of the earth for their livelihood. The examples and practice generally followed establish this humane and beneficent exception as an international rule, and this rule may be considered as adopted by customary law and by all civilized nations.

However, in United States v. Yousef (2003) the Second Circuit rejected such reliance on the work of scholars for clarification of customary international law, declaring such statements as usurpation of legal power by non-state actors if relied upon as anything more than supplementary evidence that relevant customary international law existed.

This notion—that professors of international law enjoy a special competence to prescribe the nature of customary international law wholly unmoored from legitimating territorial or national responsibilities, the interests and practices of States, or (in countries such as ours) the processes of democratic consent—may not be unique, but it is certainly without merit.

Thus, according to the Second Circuit, clarifications of customary international law are invalid as bases of decision. And when Yousef appealed, the Supreme Court declined to grant certiorari.

Looking Forward

Where does this leave customary international law? Can we rely on the work of legal scholars to clarify customary international law as we do for domestic common law under the Restatements? Or is reliance of such clarifications a usurpation of power from national and international actors?

If the former, does this place us at the mercy of academics in deciding matters of international law and diplomacy? If the latter, does a rejection of clarification render this entire body of law unenforceable and functionally useless?

For further reading, see “International Law as Law in the United States”, Michigan Law Review Vol. 82, No. 5/6 (1984); Litigation of International Disputes in U.S. Courts, 2d § 9:2.