On Monday, I reported that the 7^th Circuit had not decided whether 28 U.S.C. §1782 discovery is available in private international arbitrations. That has changed.  On Tuesday, the Circuit joined the Second and Fifth in holding that such private proceedings are not “tribunals” under the statute.  In other business, District Courts reminded us of the broad discretion given an arbitrator under the AAA’s Rules and of the importance of the written agreement which often is the last step in a mediation.

Discovery under 28 U.S.C. §1782

The limitations on discovery in arbitration are either a curse or a blessing, depending on your position in any given case. In light of the difficult interjurisdictional issues involved in international matters, the availability of court-ordered discovery under the provisions of 28 U.S.C. §1782 is a particularly important issue for advocates in foreign arbitrations.   The Circuits have split on whether that provision provides the parties an opportunity for discovery, with the Second and the Fifth Circuits holding the statute inapplicable to private proceedings, Nat’l Broad. Co. v. Bear Stearns & Co., 163 F. 3d 184 (2^nd Cir. 1999); Republic of Kazakhstan v. Biedermann Int’l, 168 F. 3d 880 (1999), while the Sixth and Fourth Circuits have reached the opposite result, Abdul Latif Jameel Transp. Co. v. FedEx Corp. (In re: Application to Obtain Discovery for Use in Foreign Proceedings), 939 F.3d 710 (6^th Cir. 2019); Servotronics, Inc. v. Boeing Co., 954 F.3d 209 (4^th Cir. 2020).  The Seventh Circuit has now joined the Second and Fifth in finding that Section 1782 does not authorize discovery in private arbitrations, Servotronics, Inc. v. Rolls-Royce, PLC, 2020 U.S. App. LEXIS 30333 (Sept. 22, 2020).

The case grows out of a London based arbitration under the rules of the Chartered Institute of Arbiters, relating to a fire which destroyed a jet engine during Boeing’s testing of a new aircraft. Rolls-Royce, the manufacturer of the engine, settled with Boeing and, thereafter, brought the subject arbitration, seeking $12 million of indemnification from Servotronics, the manufacturer of an allegedly defective valve in the engine.  Servotronics, invoking 28 U.S.C. §1782, filed an ex parte application asking the U.S. District Court for the Northern District of Illinois to issue a subpoena compelling Boeing to produce documents for use in the arbitration. The District Court denied the application; Servotronics appealed.

Section 1782 provides:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a foreign or international tribunal, including criminal investigations conducted before a formal accusation. (Emphasis added).

The issue splitting the Circuits is whether a private international arbitration is a “tribunal.”  In her opinion, Chief Judge Sykes first looks to dictionary definitions of the word and finds the review to be “inconclusive,” as legal and common usage include both state-sponsored entities and arbitration panels. The Court, then, analyzes the word “tribunal” in its context and the history of the overall statute.  It reviews the charge given to the 1958 Commission on International Rules of Judicial Procedure, the body which proposed revision of Section 1782. While the Commission’s mandate contained a reference to “State and Federal courts and quasi-judicial agencies,” there was no instruction to make recommendations to improve arbitration.  The court next considers the relationship between Section 1782 and 28 U.S.C. 1696 (dealing assistance with service of process in foreign litigation) and 28 U.S.C. 1781 (regarding letters rogatory) – other provisions dealing with international dispute resolution. All three statutes use the phrase “foreign or international tribunal.” Since both the letters rogatory process and international service of process are, in the court’s words, “matters of comity between governments,” Judge Sykes opines that, in order to harmonize the three statutes, “foreign tribunal”, as it appears in Section 1782, must also be limited to governmental or quasi-governmental entities.  Finally, the Court looks to the effect of a broad interpretation of Section 1782 on other arbitration procedures.  Invoking a policy argument, the court recognizes that the Federal Arbitration Act permits only the panel, not the parties, to summon witnesses to testify and produce documents and opines that “it’s hard to conjure a rationale for giving parties to private arbitrations such broad access to federal-court discovery assistance in the United States while precluding such discovery assistance for litigants in domestic arbitrations.”  Likewise, since the FAA applies to some foreign arbitrations under the New York and Inter-American Conventions, the Court holds that reading Section 1782 to permit discovery in foreign arbitrations would create a conflict in the same between the usual narrow scope of FAA domestic discovery and a broader Section 1782.

The split between the Circuits raises the bizarre result that the ability to obtain discovery hinges solely upon the fortuity of the proposed witness’s location, a fact unrelated to any public policy or case-related issue.  Eventually, SCOTUS needs to provide a single rule.  Until, then, practitioners will be conducting a “Where’s Waldo” search to “find” their witnesses in a discovery friendly Circuit.

Elizabeth Sandza, FCIArb, presented a good discussion of the issues raised by this conflict in a September 15^th webinar entitled “’Schein’-ing a Light on Circuit Splits” presented by the North American branch of the Charter Institute of Arbiters.  I cannot tell from the Institute’s website whether the program was recorded and is still available.  Check with them; if you can get the program, it is well worth your time.

Arbitrator power under the AAA Rules

In a short case, the District Court, Crabb, J., reminds us of the broad scope of authority which the AAA rules invest in arbitrators.  Herrington v. Waterstone Mortg. Co., 2020 U.S. Dist. LEXIS 173557 (W.D  Wisc.) begins with the Court of Appeals’ reversal, in light of Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), of an earlier judgment in Herrington, in which Judge Crabb held that waivers of class or collective status were not enforceable under the NLRA and confirmed a collective arbitration in the amount of $10 million by Arbitrator George Pratt (formerly of the Second Circuit).  On remand, Judge Crabb vacated the arbitrator’s award, held that there must be a “new proceeding on the question of whether [plaintiff] is entitled to damages” (brackets in original, but emphasis added) and “remanded this dispute for single-plaintiff arbitration.”  Having seen what Judge Pratt did the first time around, Waterstone, not surprisingly, wanted to avoid a repeat proceeding before him and took the position that the first arbitration was over, that the arbitrator was functus officio, and that the AAA had to appoint a new arbitrator.  The AAA referred to the arbitrator the question of whether he had jurisdiction to rehear the matter; he held that he could do so.  After Judge Pratt awarded $14,952 in damages and $1,100,000 in attorney’s fees and costs, Waterstone, again, sought to vacate. Applying the usual standard that an arbitrator’s award is not vacated “even for clear or gross errors,” the Court holds that the AAA rules, which grant the arbitrator competence-competence authority, authorized his decision to retain jurisdiction.  Likewise, again relying upon AAA rules, which give arbitrator broad discretion to determine the materiality and relevance of evidence, the Court rejects claims that Judge Pratt erred in admitting evidence received in his previous hearing and denying the defendant further discovery.

Case summary – if you want to limit the arbitrator’s virtually complete discretion over all aspects of procedure, tailor your arbitration agreement and do not simply invoke the AAA Rules.

Enforceability of Mediation Agreements

Mediations often end with bleary eyed parties drafting a memorandum in the middle of the night, with a more detailed agreement to be crafted later. Murphy v. Inst. of Int’l Educ., 2020 U.S. Dist. LEXIS 174570 (S.D.N.Y.) (Sept. 23, 2020) discusses the enforceability of a brief, first “Mediation Agreement,” after one party got buyer’s remorse and refused to sign a second, fuller “Settlement Agreement.”  In a detailed analysis which considers the language of the “Mediation Agreement,” the partial performance thereof,  the immateriality of any missing terms, and the lack of duress, the Court, Carter, J., grants Defendant’s motion to enforce the “Mediation Agreement”.  While the court rejects Ms. Murphy’s duress claim, the discussion of the issue should remind both mediators and counsel that the decision of whether to settle the case belongs to the parties. It is not our job to make a party feel he or she has “no choice but to sign.”

Have a great weekend.  See you Monday.

David Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com