Opinion
M 19-375 (DLC).
November 20, 2000.
MEMORANDUM OPINION ORDER
Petitioners Smoothline Ltd and Greatsino Electronic Ltd (collectively, "Smoothline") move pursuant to 28 U.S.C. § 1782 to compel discovery of respondent North American Foreign Trading Corporation ("NAFT") in connection with proceedings against NAFT in Liechtenstein. For the reasons stated below, Smoothline's application is stayed pending a decision on defendant's appeal of this Court's July 20, 2000 Opinion and Order (the "July 20 Order") in these cases.
BACKGROUND
Smoothline filed its initial petition under Section 1782 on March 13, 2000. In a related action, Smoothline sued to enjoin arbitration proceedings instituted by defendant North American Foreign Trading Corporation ("NAFT"). Smoothline v. NAFT, No. 00 Civ. 2798 (DLC). NAFT responded to Smoothline's Section 1782 petition by arguing that the Liechtenstein dispute was required to be submitted to arbitration in New York, and moved in the related action to compel arbitration.
In the July 20 Order, this Court denied NAFT's motion to compel arbitration and denied without prejudice Smoothline's petition to take discovery, holding that Smoothline was entitled to discovery from NAFT in connection with the Liechtenstein action, but that its discovery request was overbroad and unduly burdensome. On August 11, 2000, NAFT appealed that Order, limiting its appeal to the issue of arbitrability. That appeal is pending.
On September 13, Smoothline submitted a revised request for discovery. NAFT opposed this application, and filed a crossmotion to stay the application during the pendency of the appeal of the Court's July 20 Order.
The facts of this case are set forth in the Court's July 20 decision and will not be repeated here except in summary form. Briefly, this dispute concerns an arrangement pursuant to which Smoothline manufactured telephones for NAFT, which is a principal supplier of telephones and related equipment to BellSouth Corporation. Important for purposes of this motion is the fact that FHA Handelsanstalt ("FHA"), a Liechtenstein company that opened letters of credit in connection with the shipment of the telephones at issue, is a defendant along with NAFT in the Liechtenstein action.
DISCUSSION
NAFT's principal argument in opposition to Smoothline's present application is that this Court lacks jurisdiction to decide it, because NAFT's appeal of the July 20 Order remains pending before the Second Circuit Court of Appeals. NAFT relies principally on this Court's June 29, 1999 Opinion in Satcom Int'l Group PLC v. Orbcomm Int'l Partners. L.P., 55 F. Supp.2d 231 (S.D.N.Y. 1999),aff'd 205 F.3d 1324 (2d Cir. 1999) (table), where, in the absence of Second Circuit authority on the issue, the Court followed the Seventh Circuit in holding that during the pendency of an interlocutory appeal under the Federal Arbitration Act, 9 U.S.C. § 16 (a), a district court generally lacks jurisdiction over the matters that are the subject of the appeal. Satcom, 55 F. Supp.2d at 236; see also Bradford-Scott Data Corp., Inc. v. Physician Computer Network. Inc., 128 F.3d 504, 505 (7th Cir. 1997). The Second Circuit still has not addressed this issue.
Smoothline claims that Satcom is distinguishable from the case at hand, arguing that the issue on appeal is separate from the issues presented by the present petition. Specifically, Smoothline argues that because FHA is not a party to the agreement to arbitrate on which NAFT relies, it may decide to continue the Liechtenstein action against FHA even if the Second Circuit reverses this Court and requires that Smoothline's claims against NAFT be submitted to arbitration. In that event, Smoothline argues, Smoothline will remain entitled to take discovery from NAFT as a third party.
Smoothline's argument is not persuasive. It is not clear that it even intends to proceed with the Liechtenstein action against FHA alone or that FHA is a proper party to the Liechtenstein action. In its original motion papers, NAFT argued that FHA, which merely issued letters of credit and was not otherwise involved in the commercial relationship between Smoothline and NAFT, was named as a defendant in the Liechtenstein action as a ploy to manufacture Liechtenstein jurisdiction over the dispute and to contravene its obligation to arbitrate with NAFT. Because it ruled that Smoothline was not obligated to arbitrate that dispute in any event; the Court did not need to address the issue of FHA in its July 20 Order. In any event, even if the Liechtenstein action proceeds against FHA, the appropriate scope of inquiry regarding NAFT may be much narrower if the claims against NAFT are no longer part of the Liechtenstein action. Smoothline has not described the basis for or scope of its claims against FHA. Accordingly, the Second Circuit's decision on the pending appeal may be dispositive of Smoothline's pending application.
CONCLUSION
Because this Court lacks jurisdiction, Smoothline's application is stayed pending a decision on NAFT's appeal of this Court's July 20, 2000 Opinion and Order.