Discovery Under §1782 by Lionel M. Schooler, FCIArb Jackson Walker LLP1

Introduction. In In Re Ex Parte Application for Order to Take Discovery Pursuant to 28 U.S.C. §1782 from Goldberg Lindsay & Co., _____ F.4th _____, 2024 WL 3170983 (2d Cir. 2024), the United States Court of Appeals for the Second Circuit determined that even in light of recent restrictive decisions by the U.S. Supreme Court concerning the scope and use of 28 U.S.C. §1782 to obtain discovery in an international arbitration proceeding through the vehicle of U.S. federal courts, such discovery could be obtained in the case before it.

Background. Section 1782 states the following concerning applications by a foreign or international tribunal or interested person to U.S. federal courts to obtain discovery from a third party: a U.S. court in which a person resides or may be found can order the giving of testimony or the production of documents in a proceeding occurring in a foreign or international tribunal including criminal investigations conducted before formal accusation.

Against this backdrop, the Second Circuit noted that when considering a §1782 application, a district court has to use a “two-step” procedure: In the first step, the court has to ensure that the person from whom discovery is sought resides in the district; that the discovery in question is for use in a foreign proceeding before a foreign or international tribunal; and that the application is made by a foreign or international tribunal or any interested person. In the second step, the court is obliged to evaluate whether the requested discovery satisfies the goals of §1782, that is, the providing of an efficient means of assisting participants and correspondingly encouraging foreign countries to provide similar means of assistance.

In this case, the requesting party, a private company based in Austria, indicated it was seeking the discovery in question for use in a pending criminal investigation in Austria related to alleged misconduct by another party. The complicating factor in this case was that the requesting party had not only filed criminal complaints against the entities involved, but had also initiated private arbitration proceedings against related entities before the German Arbitration Institute.

Issue Presented. As identified by the Second Circuit, the issue in this case was whether the requested discovery satisfied the §1782 requirement that it be for use in a foreign proceeding before a foreign tribunal.

Lower Court’s Rulings. Responding to the request for discovery, and a corresponding motion to quash by the targets of the discovery request, the District Court granted the discovery request, and denied the motion to quash. It likewise established no boundaries to use of the discovered information.

Court’s Analysis: Scope of Relief. On appeal, the Second Circuit focused upon the extent to which the requested documentation was “for use” in a qualifying proceeding. The Court indicated, first, that the opponents of the discovery request did not dispute that the requested discovery would be used in an Austrian criminal investigation, a proceeding which they further conceded was a qualifying foreign proceeding under §1782.

The Court went on to note that the Appellants’ concern about the discovery requested was that in reality, the requesting party intended to use such discovery in the German arbitration, not in any criminal investigation.

The Court quickly disposed of the Appellants’ first argument, how and where the discovery would be used. It noted that Circuit decisions had interpreted that once an applicant had lawfully obtained discovery under Section 1782, that statute did not preclude use of the documentation in some other proceeding, unless the discovery proponent was ordered to do otherwise by the District Court.

Turning to the question of statutory interpretation, the Court rejected Appellants’ contention that the U.S. Supreme Court’s recent decision in ZF Automotive U.S. Inc. v. Luxshare, Ltd., 596 U.S. 619 (2022), that addressed the extent to which Section 1782 discovery could be utilized in a private commercial arbitration, barred the discovery in question because of the pending private German arbitration proceedings.

The Court noted that the ZF Automotive decision did not address the “for use” requirement. The Court further noted that in this case, there was no dispute that the documentation sought to be discovered pertained to an ongoing criminal investigation which clearly qualified as the type of governmental proceeding within the ambit of Section 1782. The Court finally noted that there was nothing in the Supreme Court’s recent analysis of Section 1782 that overrode Second Circuit precedent allowing an applicant to use documentation obtained under Section 1782 in other proceedings, unless ordered not to do so.

Conclusion. In the wake of the Supreme Court’s opinion in ZF Automotive, counsel and parties have had to grapple with whether and the extent to which an American tribunal can become involved, if at all, in ordering discovery of documentation pursuant to Section 1782 that can be used in a non-governmental foreign arbitration process. In this most recent decision, the Second Circuit has explored the interstices of this issue and the extent to which there are legitimate bases for litigants to invoke Section 1782 to obtain discovery for foreign proceedings.

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1 Mr. Schooler is former Board Member of the North America Branch of the Chartered Institute of Arbitrators, and the immediate Past Chair of its Texas Chapter.