Arbitrate in London, Seek Discovery in New York

February 27, 2017

Types : Alerts

In In re Ex Parte Application of Kleimar N.V., District Court Judge Marrero of the Southern District of New York denied a motion to quash a subpoena and a motion to vacate an order to provide discovery brought by the Brazilian mining company Vale S.A. (“Vale”).

The discovery order and corresponding subpoena had been previously issued by Judge Sullivan to allow plaintiff Kleimar N.V. (“Kleimar”) to seek discovery of third-parties in connection with arbitration proceedings in London before the London Maritime Arbitration Association (LMAA). The district court issued the order allowing Kleimar to seek discovery of Vale and other parties, and Kleimar served the order and a subpoena to Vale. Vale responded with a motion to vacate the discovery order, and a motion to quash the subpoena.  It should be noted that the underlying arbitration in London was between Kleimar and Dalian Dongzhan Group Co. Ltd. – not Vale.

In its motion to vacate and quash, Vale made several arguments: (a) Vale is not a resident nor is found in the Southern District of New York, and therefore is outside of the limits set by 28 USC § 1782; (b) the London arbitration before the LMAA is not a tribunal in the sense required by 28 USC § 1782; (c) the subpoena seeks confidential commercial information; (d) the subpoena subjects Vale to an undue burden; and (e) Vale was not properly served.  In addition, Vale sought a protective order prohibiting Kleimar from using any documents produced for any purpose beyond the London arbitration.  In opposition, Kleimar argued that Vale does not have standing to vacate the discovery order, and countered Vale’s arguments.

At the outset, the district court denied Vale’s motion to vacate the discovery order to seek discovery from parties other than Vale. Consistent with current jurisprudence in the district, the district court held that Vale had no standing to move to vacate discovery orders directed towards other (i.e., third) parties.  In other words, orders directed at parties other than Vale.

In deciding over the motion to squash, the district court found that, although a foreign company, Vale was jurisdictionally present in New York for purposes of § 1782 by virtue of Vale’s systematic and regular business contacts with New York, and because Vale trades on the New York stock exchange, files forms with the SEC, and has an authorized representative and agent for service of process in New York.

The most interesting part of the decision relates to the interpretation of what constitutes a “foreign tribunal” under 28 USC § 1782.   After the 2004 U.S. Supreme Court decision in Intel Corp. v. Advanced Miro Devices, Inc., 542 US 241 (2004), suggested that commercial arbitration institutions could be considered as a “foreign tribunal” under Section 1782, several courts in other Federal appellate circuits have held that the LMAA qualifies as a “foreign tribunal.” In contrast, the Second Circuit has not formally accepted this reasoning and, as recently as 2011, has declined to reverse a 1999 decision that denied the status of “tribunal” to arbitration panels such as the LMAA.  Seeing the wisdom of the other appellate circuits and believing the more recent Supreme Court decision justifies a more progressive approach, Judge Marrero ruled that Kleimar could legitimately seek discovery from Vale pursuant to 28 USC § 1782 for the London arbitration proceedings.

The three remaining grounds argued by Vale for quashing the subpoena were denied in summary fashion – confidentiality concerns could be addressed by a protective order; there was no evidence of an undure burden, especially since partial compliance was already shown; and Vale’s identified agent for service of process was properly served. It is worth noting that Kleimar’s offer to agree to a confidentiality stipulation or protective order, and to cooperate with Vale to limit the scope of the subpoena in order to reduce the burden of searching for responsive documents was considered favorably by the district court.


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