Locke Lord QuickStudy: When Confidentiality and 28 U.S.C. § 1782 Collide: In re Application of Servotronics, Inc.

In the context of an arbitration, “confidentiality” typically refers to the parties’ obligation ‎not to disclose information concerning the arbitration to third parties. As demonstrated by a ‎recent arbitral tribunal ruling, however, the concept is not absolute and  may not be used to shield ‎relevant information from being disclosed to a U.S. court addressing a  28 U.S.C. § 1782 ‎application. ‎

Rolls-Royce PLC (“Rolls Royce”) instituted arbitration against Servotronics, Inc. ‎‎(“Servotronics”) in England pursuant to the rules of the Chartered Institute of Arbitrators (the ‎‎“English Arbitration”). Prior to the time the tribunal was fully constituted,  Servotronics filed an ‎ex parte  § 1782 application in the district court for the Northern District of Illinois requesting ‎permission to serve a subpoena on Boeing Company (“Boeing”).^‎1  The District Court initially ‎granted the application but ultimately vacated that order and quashed the subpoena, holding that ‎a private arbitral proceeding “does not qualify as a ‘foreign or international’ tribunal under the ‎statute.”‎²

Servotronics appealed the ruling to the Seventh Circuit where an opinion is pending.‎³  In ‎their appellees’ brief, Rolls-Royce and Boeing, in addition to arguing that the district court ‎properly concluded that a private commercial tribunal is not a “foreign tribunal,”‎⁴‎ asserted that if ‎the appellate court were to conclude that §1782 applies to private commercial arbitration, the case ‎should be remanded in order for the trial court to evaluate Servotronics' application using the ‎discretionary factors established in Intel Corporation v. Advance MicroDevices, Inc.’s.⁵

While Sevrotronics sought discovery in the U.S. court, the English Arbitration proceeded ‎with both parties requesting documents disclosure using Redfern Schedules. The Tribunal, in its ‎First Interim Award, made the following order regarding disclosure of documents in the ‎possession of non-party Boeing:‎

‎. . . where documents are in the possession of Boeing and the Tribunal orders ‎disclosure by the Claimant [Rolls-Royce]  . . .  , the obligation on the Claimant in ‎the first instance will be to demand copies of any documents in that category from ‎Boeing under the Mutual Release and Settlement Agreement.‎

‎. . . Claimant [Rolls-Royce] is to demand such copies from Boeing on the express ‎basis that the Tribunal has determined that such documents are relevant to issues ‎in this arbitration and their production is reasonably necessary  . . .‎

In the event of failure or refusal by Boeing to produce any such documents, the ‎Tribunal will consider any further applications the parties wish to make.‎

Following the Tribunal’s ruling, Servotronics filed an application with the Tribunal for an ‎order preventing Rolls-Royce from filing the First Interim Award, the Redfern Schedules or any ‎other documents from the English Arbitration with the U.S. court without Servotronics’ consent.  ‎In support of this application, Servotronics relied on the general obligation of confidentiality ‎under English law and the confidentiality provision of the Consolidated Terms of Appointment ‎‎(“CTA”) in the English Arbitration.‎

In response, Rolls-Royce, while acknowledging a general obligation of confidentiality ‎under English law, argued that it should be permitted to make disclosure under two recognized ‎exceptions to this general principle: (1) disclosure was necessary for Rolls-Royce to pursue its ‎legitimate rights in the U.S. court and (2) disclosure was necessary in the interest of justice to ‎avoid the risk of the U.S. court’s being misled.  Rolls-Royce further argued that disclosure of the ‎First Interim Award and Servotronics’ Redfern Schedule were directly relevant to the U.S. ‎court’s consideration of two discretionary Intel factors:  (1) whether Servotronics’ requests were ‎an attempt to circumvent foreign proof-gathering practices and (2) whether the requests were ‎unduly intrusive or burdensome (collectively “Intel Factors”).‎

The Tribunal ordered that Rolls-Royce was entitled to file the First Interim Award and ‎Servotronics' Redfern Schedule (“Arbitration Orders”) in the Seventh Circuit and should the ‎Seventh Circuit remand the case to the district court, with the district court. The Tribunal noted ‎that it had already decided on the disputed categories of documents to which Servotronics was ‎entitled and ordered that the Arbitration Orders were directly relevant to the U.S. court’s ‎consideration of the Intel Factors.‎

As for the overarching question of confidentiality, the Tribunal was unpersuaded that ‎‎“the obvious and well-established exceptions that apply to the obligation, as enunciated by the ‎Court of Appeal in Emmott”⁶ ‎were overridden by the CTA which the Tribunal described as being ‎‎“directed to the obligations owed by members of the Tribunal, not by the parties.” ‎

As a result of the Tribunal’s ruling, should the U.S. court determine that § 1782 is applicable to private commercial arbitrations and remand the case to the district court, the U.S. court will have before it confidential information from the English Arbitration to assist it in the evaluation of the Intel Factors.

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_{1 Cause No: 18-cv-7187, In re Application of Servotronics, Inc., for an Order pursuant to 28 U.S.C. §1782 to Take ‎Discovery for Use in a Foreign Proceeding, in the United States District Court for the Northern District of Illinois, ‎Eastern Division.  ‎
2 Id. at p. 6.‎
3 Cause No:19-1847, Servotronics, Inc. v. The Boeing Company and Rolls-Royce PLC, in the United States District ‎Court for the Seventh District.  ‎
4 A previous QuickStudy explored the deep divide among the U.S. courts regarding whether 28 USC §1782’s use of ‎‎“foreign tribunal” encompasses private commercial arbitration tribunals with some circuits of the United States ‎Courts of Appeals taking an expansive view of the definition. See Locke Lord QuickStudy: Private Arbitration and ‎the Use of 28 U.S.C.  § 1782: A Patchwork of Availability. ‎
5 Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). Intel sets forth mandatory and discretionary ‎factors to be considered by the court.  The four threshold mandatory requirements: (1) the request must be made ‎‎“by a foreign or international tribunal,” or by “any interested person” and an “interested person” need not be a ‎litigant; (2) the request must seek evidence, whether it be the “testimony or statement” of a person or the production ‎of “a document or other thing”; (3) the evidence must be “for use in a proceeding in a foreign or international ‎tribunal”; and (4) the person from whom discovery is sought must reside or be found in the district of the district ‎court ruling on the application for assistance. The five discretion factors a court is to consider even if the four ‎threshold requirements are met, are (1) is the person from whom discovery is sought a participant in the foreign ‎proceeding; (2) considering the nature and character of the foreign proceeding is judicial assistance appropriate; (3) ‎will the foreign government, court or agency be receptive to U.S. federal court judicial assistance; (4) is the ‎discovery request a veiled attempt to avoid foreign evidence gathering restrictions or other policies; and (5) is the ‎request unduly intrusive and burdensome?‎
6 Emmott v Michael Wilson & Partners [2008] EWCA Civ 184.}‎