Second Circuit Holds that Arbitration Pursuant to Bilateral Investment Treaty Constitutes “Foreign or International Tribunal” Under 28 U.S.C. § 1782(a)

27 July 2021 Legal News: Insurance & Reinsurance Litigation Publication
Authors: Max B. Chester Charles W. Niemann

The Second Circuit held on July 15, in AlixPartners, that an ad hoc private arbitration proceeding between a disgruntled Russian investor and Lithuania, pursuant to a treaty between these two nations, constituted a “foreign or international tribunal” under 28 U.S.C. § 1782(a), and that the lower court did not err in granting discovery assistance under the statute to the investor against a U.S. third party. We have previously written about the circuit split over whether § 1782 applies to foreign private commercial arbitrations, an issue that the United States Supreme Court will weigh in on in its next term. The statute provides:

“(a) The district court of the district in which a person resides or is found may order [the person] to give [the person’s] testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation….”

The circuit split is driven by courts’ differing interpretation of the term “foreign or international tribunal,” which the Second Circuit held, In re Guo (“Guo”)1, does not encompass private commercial arbitration. Notably, the Guo decision was issued on the same day the District Court in AlixPartners granted an application for § 1782 discovery, which perhaps unsurprisingly led the Appellants to file a motion for reconsideration.

Origins of the AlixPartners Arbitration

The underlying dispute in AlixPartners arises from Lithuania’s liquidation of a private bank called AB bankas SNORAS (Snoras), after a determination was made that the bank was insolvent. The claimant in the arbitration proceeding, The Fund for Protection of Investor Rights in Foreign States (the Fund), is an assignee of a Russian investor in Snoras, who claims damages against Lithuania for its decision to liquidate the bank. The Fund initiated an ad hoc arbitration proceeding against Lithuania under UNCITRAL rules, which was one of the available options in a bilateral investment treaty between Russia and Lithuania. The Fund then filed an application under § 1782 in the United States District Court for the Southern District of New York, seeking discovery from AlixPartners.2

Outcome and Consequences of the Second Circuit’s Decision

The District Court granted the Fund’s § 1782 application and denied a motion for reconsideration filed after the Second Circuit subsequently held in Guo that § 1782 does not apply to private commercial arbitration proceedings. In affirming the lower court’s decision, the Second Circuit adopted the “functional approach” and considered five factors outlined in Guo to answer a key question: “whether the body in question possesses the functional attributes most commonly associated with private arbitration” and is thus not a “foreign or international tribunal” under § 1782.

The Court stated that the fact the panel was convened in a format contemplated by the treaty entered into by Lithuania and Russia to address investment-related disputes weighed “heavily” in concluding that the arbitral panel qualifies as a “foreign or international tribunal” under § 1782. This characteristic also led the Court to conclude that, despite the panel’s independent functioning, the panel “retains affiliation with the foreign states.” The Court also highlighted Lithuania being a party to the proceedings “in its capacity as a foreign State” and the importance of bilateral investment treaties as tools of international relations and in creating favorable investment conditions as attributes that supported its conclusion that the underlying arbitration panel is a “foreign or international tribunal.”3

Conclusion

The Court emphasized that it was not creating a bright-line rule that all arbitrations pursuant to bilateral investment treaties qualify for § 1782 discovery. Rather, the Court held that “the features of this particular arbitration, conducted pursuant to this Treaty, are consistent with the functional features of foreign or international arbitral tribunals that, as we emphasized in Guo, differentiate such arbitrations from private commercial arbitration.” It is also important to note that § 1782 discovery is not mandatory and that district courts can reject discovery applications, based on their analysis of the Supreme Court’s Intel factors, even if statutory pre-requisites are met.

Please see our previous publications for a more in-depth analysis of § 1782 and contact a Foley attorney if you need assistance in an arbitration proceeding or in responding to or requesting § 1782 discovery.

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965 F.3d 96 (2d Cir. 2020)

2 AlixPartners was the temporary administrator of Snoras.

3 The Court characterized as neutral the factor of state authority to intervene or alter the outcome even though state authority over the constituted panel was limited, if nonexistent. And even though the panel selection factor (each party selected one arbitrator, and the two party-appointed arbitrators chose an umpire) weighed against concluding that the arbitral panel is a “foreign or international tribunal,” the Court said this factor is not determinative.

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