Justices to Decide if Courts Can Order Discovery for Foreign Arbitration

The high court will resolve a circuit split over whether U.S. courts are allowed to compel discovery for use in arbitration proceedings based in another country.

The U.S. Supreme Court. (AP Photo/J. Scott Applewhite)

WASHINGTON (CN) — The U.S. Supreme Court agreed Monday to weigh in on district courts’ authority to order discovery for foreign arbitration in international business disputes.

The underlying case between Servotronics Inc. and Rolls-Royce PLC started in early 2016 following an engine tailpipe fire that occurred at a Boeing aircraft testing facility during a demonstration and test flight. Rolls-Royce manufactured the affected engine, designed for a Boeing 787-9 Dreamliner, while Servotronics manufactured a metering valve component installed in the engine.

The fire caused $12 million in damages to the tested aircraft and Rolls-Royce settled with an insurance provider to cover the cost, but the British company sought repayment from New York-based Servotronics, blaming it for the incident. The two parties entered arbitration in England and while things started smoothly, Servotronics alleged that Rolls-Royce and Boeing withheld certain documents during the arbitration’s discovery phase. 

The lack of document production led the U.S. manufacturer to file a claim under a federal statute known as Section 1782, a more than 150-year-old law that governs how federal courts force the gathering of evidence in international disputes. A judge in the Northern District of Illinois OK’d the discovery request but the Seventh Circuit granted Rolls-Royce’s motion to quash. 

The Chicago-based appeals court’s ruling is in line with some sister courts like the Second and Fifth Circuits, but the Fourth and Sixth Circuits have held the opposite, leading to a circuit split Servotronics hopes to see resolved at the Supreme Court.

“The stark division in interpretation of Section 1782 and the uncertainty it engenders have been brought into sharp relief in the two circuit court opinions rendered by the Fourth and Seventh Circuits in connection with a single arbitration pending before an English arbitral tribunal to which petitioner is a party,” attorney Stephen R. Stegich with the New York-based Condon & Forsyth wrote in Servotronics’ petition to the high court. 

The heart of this dispute, Stegich argued in the request for certiorari, lies with a 1964 edit to Section 1782 which swapped “in any judicial proceeding pending in any court in a foreign country” with the “significantly broader” phrase “in a proceeding in a foreign or international tribunal.” 

“Congress used the word ‘tribunal’ to ensure that assistance is not confined to conventional courts, but instead extends to administrative and quasijudicial proceedings,” the petition states. “Despite this clear expression of congressional intent to expand assistance to include quasi-judicial proceedings, and this court’s thorough analysis of that expansive intent…the circuit courts of appeals are split on the issue of whether an exception of one particular type of quasi-judicial proceedings—private commercial arbitrations—should be read into Section 1782.”

But Scott P. Martin, Rolls-Royce’s attorney with the Seattle office of Perkins Coie, wrote in an opposition brief that the arbitration panel in Europe acted within its authority to deny the document request lobbed by Servotronics, and the Seventh Circuit correctly ruled the motion brought by the company was outside U.S. courts’ control. 

“The documents that have not been produced are those categories that the arbitral panel concluded were ‘excessively broad,’ ‘insufficiently focused,’ ‘not necessary for the fair disposal of the arbitration,’ or ‘not directed to relevant documents,’” Martin wrote.  

While he acknowledged the conflicting rulings between circuits, Martin instead suggested the case should “follow the well-reasoned approach that the Second Circuit first established more than two decades ago, which two other circuits have since embraced.” 

Neither Martin nor Stegich responded to requests for comment on the Supreme Court’s decision Monday to take up the case. Per their custom, the justices did not comment on the grant of review.

John B. Pinney, an attorney with the Cincinnati-based Graydon Head & Ritchey LLP, penned an amicus brief on behalf of the International Institute for Conflict Prevention & Resolution asking the high court to examine the matter. 

Pointing to the split circuit decisions, he argued “the only way for this conflict to be resolved is for the Supreme Court to take up this case.”

“The current existence of opposite rules on whether district courts have jurisdiction to render assistance under Section 1782 in gathering evidence for international arbitral tribunals creates both the opportunity for blatant forum shopping and the likelihood of protracted litigation on the threshold jurisdictional question in each of the seven remaining regional circuits that have not decided the question,” Pinney wrote.

The case was accepted following Friday’s Supreme Court conference meeting. Justice Samuel Alito took no part in the case’s consideration. No hearing date has been announced.

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