Case of the Day: United Company Rusal v. Trafigura AG
Posted on March 28, 2011
The case of the day United Company Rusal, plc v. Trafigura AG (D. Conn. 2011), raises a fascinating question: do the federal courts have subject-matter jurisdiction of applications for judicial assistance under 28 U.S.C. § 1782? One might wonder how this question could even arise. The statute provides:
The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal …
But as we will see, the question is more substantial than it might appear at first.
Rusal is a major aluminum producer. It owned more than 25% of Norilsk, a nickel producer. Two subsidiaries of Norilsk sold some of their shares to an affiliate, Trafigura Beheer BV, and repurchased them at a profit a few days later. Rusal believed that Interros, a Russian investment firm that also owned a stake in Norilsk, had “orchestrated the sale and buy-back to place additional shares in the hands of Interros-friendly shareholders in an effort to subvert a cooperation agreement between Rusal and Interros and to force Rusal to sell its interest in Norilsk at an undervalued price.”
Rusal sued Trafigura Beheer in the Krasnoyarsk Territory Arbitrazh Court. It also sued the two Norilsk subsidiaries in St. Kitts and Nevis and began arbitration against Interros at the London Court of International Arbitration. Rusal sought judicial assistance in Connecticut to obtain discovery from Trafigura AG, a subsidiary of Trafigura Beheer, in aid of all three of these proceedings. Trafigura asserted that the court lacked jurisdiction.
By way of background to the problem, look at Sections 4 and 9 of the FAA. Section 4 governs petitions to compel arbitration, while Section 9 governs petitions to confirm arbitral awards. (Both Sections 4 and 9 apply to domestic arbitrations only). Section 4 provides:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.
It seems plain on the face of the statute that Congress did not intend the statute to be a freestanding grant of jurisdiction: the statute only applies when the court would have had jurisdiction of the underlying dispute between the parties. And in fact, the Supreme Court has held that Section 4 does not vest the district courts with jurisdiction; they can decide petitions to compel only if they would have jurisdiction over the underlying dispute. Vaden v. Discover Bank, 129 S.Ct. 1262 (2009).
Section 9 of the FAA, which governs petitions for confirmation of domestic arbitration awards, does not, on its face, have similar language looking to the underlying case for jurisdictional purposes:
If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.
Although Section 9 is less clear than Section 4, and although the Supreme Court has not spoken definitively on the point, it seems well settled that Section 9 does not vest the district courts with jurisdiction. E.g., Peabody Coal Co. v. Navajo Nation, 373 F.3d 945 (9th Cir. 2004); Lefkovitz v. Wagner, 395 F.3d 773 (7th Cir. 2005).
Now compare the language of these two statutes to the language of 28 U.S.C. § 1782, the judicial assistance statute:
The district court of the district in which a person resides or is found may order him to give his 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 language is like the language of § 9 of the FAA rather than § 4 insofar as it does not expressly require the court to look to the underlying case to determine whether it has jurisdiction. But as we have just seen, § 9 does not create jurisdiction, so why should § 1782? That is the puzzle.
One distinction between § 9 and § 1782 is that § 9 is part of a greater statutory scheme, and that given that § 4 does not grant jurisdiction over petitions to compel arbitration awards, it would be anomalous to read § 9 to grant jurisdiction over petitions to confirm arbitration awards–why should the district court have jurisdiction to confirm and award in a case where it could not have compelled arbitration in the first place? But this distinction is insuficient, it seems to me, to explain why § 1782 grants jurisdiction. It merely weakens the analogy to § 9. It is still necessary to make a positive argument for why § 1782 should be read as a jurisdiction-granting statute.
I believe that § 1782 should be read to create jurisdiction, but I do not find the reasoning in Trafigura persuasive. The judge asserted, first, that any application under the statute necessarily arose under federal law, so as to bring the case within the federal question jurisdiction, because the applicant’s motion for discovery asserted no other cause of action and Trafigura, the party resisting discovery, did not point to any other law under which Rusal, the applicant, could have obtained the relief it sought.The judge seems to have ignored Section 52-148e(f) of the Connecticut General Statutes, which provides:
Deposition of witnesses living in this state may be taken in like manner to be used as evidence in a civil action or probate proceeding pending in any court of the United States or of any other state of the United States or of any foreign country, on application to the court in which such civil action or probate proceeding is pending of any party to such civil action or probate proceeding. The Superior Court shall have jurisdiction to quash or modify, or to enforce compliance with, a subpoena issued for the taking of a deposition pursuant to this subsection.
Other states have similar laws. Moreover, it does not seem to me that the mere fact that the application for discovery cited only § 1782 means much. A petition to confirm an arbitration award might only cite § 9 of the FAA, and yet as we have seen, that statute does not grant jurisdiction.
The judge also argued that the legislative history of § 1782 shows that Congress intended for the federal courts to have jurisdiction. But it does not seem to me that the material the court cites shows a clear intention to vest jurisdiction in the district courts.
These arguments seem unpersuasive, but it seems to me that there is a clear argument in the text of the statute itself that should lead courts to find that the statute vests them with jurisdiction. The statute provides for judicial assistance in cases where the underlying dispute cannot possibly be within the district court’s jurisdiction. Most notably, the statute provides for judicial assistance for use in “criminal investigations conducted before formal accusation.” Thus the statute only makes sense, or so it seems to me, as a grant of jurisdiction, otherwise the phrase just quoted would make no sense.
I think this is an interesting issue. As time permits, I am going to try to give it a more complete treatment.