On a question of first impression in the Seventh Circuit regarding whether U.S. law allows federal courts to compel discovery for use in a private foreign arbitration, the Seventh Circuit joins the Second and Fifth Circuits in ruling that Section 1782 of the U.S. Code does not apply to private international arbitrations. This decision departs from recent rulings in the Fourth and Sixth Circuits, which concluded that Section 1782 applies to private commercial arbitrations.
This case arises out of an indemnification dispute over losses incurred when an aircraft engine caught fire during testing in South Carolina. Rolls-Royce PLC manufactured and sold a Trent 1000 engine to the Boeing Company for incorporation into a 787 Dreamliner aircraft. In January 2016, Boeing tested the new aircraft at its facility near the Charleston International Airport. A piece of metal became lodged in an engine valve, restricting the flow of fuel to the engine. As Boeing employees attempted to fix the problem, the engine caught fire, damaging the aircraft. Boeing demanded compensation from Rolls-Royce, and in 2017 the companies settled for $12 million. Rolls-Royce then sought indemnification from Servotronics, Inc., the manufacturer of the valve.
The relevant agreement between Rolls-Royce and Servotronics required any dispute not resolved through negotiation or mediation be submitted to binding arbitration in Birmingham, England, under the rules of the Chartered Institute of Arbiters. After failed negotiations, Rolls-Royce initiated arbitration with the Charted Institute of Arbiters in London.
Servotronics filed an ex parte application in the U.S. District Court for the Northern District of Illinois asking the court to issue a subpoena compelling Boeing to produce documents for use in the London arbitration pursuant to Section 1782(a). The judge initially granted it and issued the requested subpoena. Rolls-Royce intervened and moved to quash the subpoena, arguing that Section 1782(a) does not permit a district court to order discovery for use in a private foreign commercial arbitration. Boeing intervened and joined the motion to quash. The judge reversed course and quashed the subpoena, agreeing with Rolls-Royce and Boeing that Section 1782(a) does not authorize the court to provide discovery assistance in private foreign arbitrations. Servotronics appealed.
Focusing on the statutory phrase “foreign or international tribunal” – or more particularly, the word “tribunal” – the Seventh Circuit held that the London arbitration does not qualify as a “foreign tribunal” under Section 1782. The panel concluded that a “foreign tribunal” as written in the statute means a governmental, administrative, or quasi-governmental tribunal operating under a foreign country’s practices and procedures. “Private foreign arbitrations, in other words, are not included.”
The panel also noted that a narrower interpretation of the word “tribunal” would conflict with the Federal Arbitration Act, which allows only the arbitration panel (and not the parties) to summon witnesses before the panel to testify and produce documents and to petition the district court to enforce the summons. Section 1782, however, permits both foreign tribunals and litigants to obtain discovery orders from district courts. “If § 1782(a) were construed to permit federal courts to provide discovery assistance in private foreign arbitrations, then litigants in foreign arbitrations would have access to much more expansive discovery than litigants in domestic arbitrations,” the panel wrote.
The panel found it difficult to “conjure a rationale” for giving parties to private foreign arbitrations such broad access to federal court discovery assistance in the United States while precluding such discovery assistance for litigants in domestic arbitrations.
Servotronics, Inc. v. Rolls-Royce PLC and the Boeing Company, No. 19-1847 (7th Cir. Sept. 22, 2020)