165 F.3d 184 (2nd Cir. 1999), 98-7468, National Broadcasting Co., Inc. v. Bear Stearns & Co., Inc.

Docket Nº:98-7468.
Citation:165 F.3d 184
Party Name:NATIONAL BROADCASTING COMPANY, INC. and NBC Europe, Inc., Appellants, v. BEAR STEARNS & CO., INC.; Merrill Lynch & Company; Salomon Brothers, Inc.; SBC Warburg, Inc.; Violy Byorum & Partners; and TV Azteca S.A. de C.V., Appellees.
Case Date:January 26, 1999
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 184

165 F.3d 184 (2nd Cir. 1999)



BEAR STEARNS & CO., INC.; Merrill Lynch & Company; Salomon

Brothers, Inc.; SBC Warburg, Inc.; Violy Byorum

& Partners; and TV Azteca S.A. de C.V.,


No. 98-7468.

United States Court of Appeals, Second Circuit

January 26, 1999

Argued July 13, 1998.

Page 185

Frank H. Wohl, Lankler Siffert & Wohl, New York, NY (Harold E. Schimkat, Lankler Siffert & Wohl, Susan E. Weiner, National Broadcasting Company, Inc., New York, NY, of counsel), for Appellants.

Alan H. Kaufman, Jones, Day, Reavis & Pogue, New York, NY and William C. Fredericks, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY (E. Michael Bradley and Mark S. Mandel, Jones, Day, Reavis & Pogue, Yocheved Cohen and David Gruenstein, Wachtell, Lipton, Rosen & Katz, New York, NY, Keith M. Fleischman, Milberg Weiss Bershad Hynes & Lerach LLP, of counsel), for Appellees.

Before: MINER and CABRANES, Circuit Judges, and CHATIGNY, District Judge. [*]

JOSE A. CABRANES, Circuit Judge:

The question presented is whether a commercial arbitration conducted in Mexico under the auspices of the International Chamber of Commerce, a private organization headquartered in France, is a "proceeding in a foreign or international tribunal" as those words are used in 28 U.S.C. § 1782. 1 We hold that it is not.

National Broadcasting Company, Inc. and NBC Europe, Inc. (jointly, "NBC"), respondents in an arbitration proceeding in Mexico initiated by the Mexican television broadcasting company TV Azteca S.A. de C.V. ("Azteca"), appeal from an order of the United States District Court for the Southern District of New York (Robert W. Sweet, Judge ) quashing subpoenas directed by NBC to Azteca's investment bankers and advisors, Bear Stearns & Co., Inc., Merrill Lynch & Company, Salomon Brothers, Inc., SBC Warburg, Inc. and Violy Byorum & Partners (the "Third Parties") 2 and denying

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NBC's cross-motion to enforce the subpoenas. The district court quashed the subpoenas, concluding that 28 U.S.C. § 1782, which gives United States courts the authority to order testimony or production of evidence for use "in a proceeding in a foreign or international tribunal," does not apply to private commercial arbitration under the auspices of non-governmental organizations. In re: The Application of National Broadcasting Co., No. M-77, 1998 WL 19994 (S.D.N.Y. Jan. 21, 1998). We affirm.


In 1994, NBC and Azteca, a then-privately-held Mexican television broadcasting company, entered into an agreement under which NBC would provide Azteca with programming and other services. In exchange, NBC's compensation included the option to purchase up to 10% of Azteca's shares at any time before May 1997 according to a preset pricing formula. The agreement also provided that any disputes would be resolved through private commercial arbitration administered by the International Chamber of Commerce ("ICC"), a private organization based in Paris, France, under ICC rules and Mexican law. Purporting to act under the agreements, NBC on April 3, 1997 sought to purchase 1% of Azteca's shares. On April 28, 1997, Azteca, alleging that NBC had failed to perform under the agreement, initiated arbitration against NBC in Mexico pursuant to the 1994 agreement. On July 15, 1997, NBC filed its answer, and on July 29, 1997, amended its answer and included counterclaims; the counterclaims alleged that Azteca improperly induced NBC to forgo exercising its option for the full 10% of Azteca's shares by leading NBC to believe, among other things, that (i) Azteca had no plans to conduct an initial public offering of securities ("IPO"), and (ii) Azteca's estimate of the value of the company's shares was not significantly above the contractually agreed exercise price. Azteca replied that it never contemplated a public offering or misstated the value of its shares during the relevant time period.

In anticipation of the ICC arbitration proceeding in Mexico but prior to the appointment of the arbitration panel, NBC applied ex parte, pursuant to 28 U.S.C. § 1782, to the United States District Court for the Southern District of New York (Deborah A. Batts, Judge ) for authorization to serve document subpoenas on the six third-party financial institutions engaged by Azteca with regard to its IPO plans. On August 1, 1997, Judge Batts granted the application, and NBC later served the subpoenas, which demanded the production of documents bearing on the timing of Azteca's IPO plans and the valuation of Azteca shares. Within a month, Azteca and five of the third-party financial institutions moved to quash the subpoenas; NBC cross-moved to compel compliance with them.

On January 16, 1998, Judge Sweet granted the motion to quash the subpoenas and denied NBC's cross-motion, concluding that the term "foreign or international tribunal" in 28 U.S.C. § 1782, a statute authorizing district courts to assist discovery efforts in connection with proceedings before such tribunals, does not encompass private international commercial arbitration. This timely appeal followed.


We review the district court's interpretation of 28 U.S.C. § 1782 de novo. See Euromepa, S.A. v. R. Esmerian, Inc., 154 F.3d 24, 26 (2d Cir.1998); United States v. Ribadeneira, 105 F.3d 833, 834 (2d Cir.1997) (per curiam); United States v. Proyect, 989 F.2d 84, 87 (2d Cir.), cert. denied, 510 U.S. 822, 114 S.Ct. 80, 126 L.Ed.2d 49 (1993).

Ordinarily, because commercial arbitration is a creature of contract, only the parties to the arbitration contract are bound to participate. See, e.g., AT & T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ("[A]rbitration is a matter of contract and a party cannot be required to

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submit to arbitration any dispute which he has not agreed so to submit.") (internal quotation marks and citation omitted); Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir.1995). If discovery were to be obtained from the Third Parties--none of which was a party to the arbitration agreement at issue here--the authority to compel their participation would have to be found in a source other than the parties' arbitration agreement. That source, NBC claims, is § 1782.


Appellees first argue that § 1782, regardless of its meaning, is not available to NBC because the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., which provides a role for the federal courts in arbitration, is the exclusive means for obtaining evidence from non-parties in connection with private arbitration proceedings.

The FAA applies to private commercial arbitration conducted in this country; and it applies also to arbitrations in certain foreign countries by virtue of legislation implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 7 I.L.M. 1046 (implemented at 9 U.S.C. §§ 201-08) (the "New York Convention"), and the Inter-American Convention on International Commercial Arbitration, Jan. 30, 1975, 14 I.L.M. 336 (implemented at 9 U.S.C. §§ 301-07) (the "IAC"). The statute principally provides for the enforcement of agreements to arbitrate, supplying judicial assistance to facilitate arbitration, and providing for confirmation, vacation, or modification of the arbitrators' resulting decisions. Section 7 of the FAA 3 provides statutory authority for invoking the powers of a federal district court to assist arbitrators in obtaining evidence. Under this provision, arbitrators may subpoena witnesses and direct those witnesses to bring material documentary evidence to an arbitral hearing; if witnesses fail to comply, the district court for the district in which the arbitrators are sitting may compel compliance with such subpoenas. See 9 U.S.C. § 7.

The methods for obtaining evidence under § 7 are more limited than those under § 1782 in two, and possibly three, ways. First, § 7 explicitly confers authority only upon arbitrators; by necessary implication, the parties to an arbitration may not employ this provision to subpoena documents or witnesses. See 9 U.S.C. § 7; see also Burton v. Bush, 614 F.2d 389, 390 (4th Cir.1980) ("While an arbitration panel may subpoena documents or witnesses, the litigating parties have no comparable privilege.") (citations omitted), cited with approval in St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 591 (7th Cir.1992); Beth H. Friedman, The Preclusive Effect of Arbitral Determinations in Subsequent Federal Securities Litigation, 55 Fordham L.Rev. 655, 672 & n. 126 (1987) ("While an arbitration panel has the power to subpoena documents or witnesses, the parties to the arbitration lack the advantage of discovery.") (footnotes omitted). Second, § 7 explicitly confers enforcement authority only upon the...

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