International Arbitration Update: U.S. Supreme Court Limits The Scope Of Discovery In Aid Of International Arbitration To Governmental Or Intergovernmental Adjudicative Bodies - Arbitration & Dispute Resolution

Does 28 U.S.C. § 1782 ("Section 1782"), which permits litigants to seek the assistance of U.S. district courts in obtaining evidence for use in a "foreign or international tribunal," apply to arbitrations before "private adjudicatory bodies"? In an opinion issued this week, the U.S. Supreme Court resoundingly said no. SeeZF Automotive US, Inc. v. Luxshare, Ltd., Nos. 21-401, 21-518.¹ The Court unanimously held that Section 1782's authorization to order testimony or the production of evidence "for use in a proceeding in a foreign or international tribunal" reaches only governmental or intergovernmental adjudicative bodies and not private adjudicatory bodies.²

Section 1782 Discovery

Section 1782 empowers federal district courts to grant applicants the authority to issue subpoenas in the United States to obtain documents and/or testimony in aid of foreign proceedings. An applicant pursuing Section 1782 discovery must establish that:

a) The discovery is for use in an actual or contemplated proceeding before a "foreign or international tribunal";

b) The applicant is an "interested person" in that proceeding; and

c) The person from whom the discovery is sought resides or is otherwise found in the district of the court where the application is filed.³

If the applicant satisfies all of these statutory requirements, a district court has the discretion to grant or deny the application after considering the following factors established by the U.S. Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc.:

a) Whether the discovery sought is within the foreign tribunal's jurisdictional reach and thus accessible without resort to Section 1782;

b) The nature of the foreign tribunal, the character of the proceedings abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal court judicial assistance;

c) Whether the applicant's request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States; and

d) Whether the request is unduly intrusive or burdensome.⁴

ZF Automotive and AlixPartners

In ZF Automotive, Luxshare, a party to private international arbitration, obtained an order from the U.S. District Court for the Eastern District of Michigan granting limited discovery from ZF Automotive under Section 1782.⁵ After Luxshare served subpoenas on ZF, ZF moved to quash the subpoenas, arguing that the arbitration panel was not a foreign or international tribunal under Section 1782.⁶ But the district court ordered ZF to produce documents, and the Sixth Circuit Court of Appeals-which had previously held that private arbitration panels constitute "foreign or international tribunals" under Section 1782⁷-denied ZF's request for a stay.⁸ The Supreme Court granted certiorari.

In AlixPartners, the Fund for Protection of Investor Rights in Foreign States (the "Fund") commenced an international arbitration against Lithuania, pursuant to a bilateral investment treaty between Russia and Lithuania.⁹ The bilateral treaty stipulates that an investor, who has a claim against a state that is a party to the treaty, may bring the dispute before "an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). . . ."¹⁰ The Fund subsequently filed a Section 1782 application in the U.S. District Court for the Southern District of New York, seeking leave to obtain discovery from AlixPartners, among others, to be used in the international arbitration proceeding.¹¹ The district court granted the Fund's application after finding that all three of the statutory requirements of Section 1782 were met and the Intel factors favor granting the Fund's request for discovery. The Second Circuit Court of Appeals affirmed the decision.¹²

Although the Second Circuit had previously held that Section 1782 does not apply to private arbitration panels,¹³ in AlixPartners, the Second Circuit found that the ad hoc arbitration panel constituted a "foreign or international" arbitration panel, rather than a private arbitration panel.¹⁴ The Supreme Court granted certiorari and consolidated the two cases.¹⁵

The Supreme Court's Rulings

The Supreme Court held that "the phrase 'foreign or international tribunal' in [Section] 1782" includes only "governmental or intergovernmental bodies" and does not include private adjudicatory bodies.¹⁶ The Court reasoned that, although the statutory history indicates that Congress used the word "tribunal" broadly, the context of the statute (e.g., the modifiers "foreign or international") limits the word "tribunal" to "an adjudicative body that exercises governmental authority,"¹⁷ specifically, to "a tribunal imbued with governmental authority by one nation, and . . . [to] a tribunal with governmental authority by multiple nations."¹⁸

The Court found that its reading of Section 1782 was consistent with the Federal Arbitration Act (FAA), which governs domestic arbitration. The Court explained that the FAA and Section 1782 differ in numerous ways with respect to discovery.¹⁹ Notably, Section 1782 "permits much broader discovery than the FAA. . . ."²⁰ Thus, the Court reasoned, if Section 1782 includes private arbitration, domestic litigants in domestic arbitrations would be precluded from broad federal-court discovery assistance, while parties to private foreign arbitrations would be given broad access to federal-court discovery assistance.²¹

Having determined the scope of Section 1782, the Court held that the adjudicative bodies at issue in ZF Automotive and AlixPartners were not governmental or intergovernmental bodies within the meaning of "foreign or international tribunal."²² The Court so held because the arbitral panel in ZF Automotive (1) was formed by the parties, (2) was operated by default, private arbitral rules, and (3) had no government involvement when creating the panel or prescribing its procedures.²³

Likewise, the Court found that the ad hoc arbitration panel in AlixPartners did not qualify as a governmental body under Section 1782. The Court reasoned that the treaty, which allowed an investor to choose a forum to resolve a dispute from various options, allowed the parties in AlixPartners to resolve their dispute before a "pre-existing governmental body" (i.e., a court).²⁴ The Fund, however, chose to resolve its dispute with Lithuania before an ad hoc arbitration panel, not a court, and Lithuania consented. The Court held that just because a nation agrees to submit to an arbitration panel does not automatically make that panel a governmental or intergovernmental body. The key question is whether the nation "intended that the ad hoc panel exercise governmental authority."²⁵ With this in mind, the Court found that there was nothing in the treaty that reflected "Russia and Lithuania's intent that an ad hoc panel exercise governmental authority."²⁶ Further, the panel was not affiliated with either Russia or Lithuania and lacked "other possible indicia of a governmental nature."²⁷ The Court made it clear that its decision did not preclude sovereign nations from imbuing an arbitration panel with official governmental authority, but it found that the nations in this case did not do so.²⁸

Looking Ahead

The Supreme Court's decision in ZF Automotive has resolved the split among the circuits (the Fourth and Sixth Circuits on one side, and the Second, Fifth, and Seventh Circuits on the other). The Court has provided clear guidance to the international arbitration community: Section 1782 applies to governmental or intergovernmental adjudicative bodies and does not apply to private adjudicatory bodies. This means that discovery under Section 1782 will be unavailable in most cases.

Footnotes

1. For a more in-depth discussion of the underlying cases, please see our prior client alert, which is available at International Arbitration Update: Supreme Court Takes Opportunity to Revisit Circuit Split over Discovery in Aid of International Arbitration | Morrison Foerster (mofo.com).

2. ZF Automotive US, Inc. v. Luxshare, Ltd., Nos. 21-401, 21-518, 596 U.S. ____, slip op. at 1 (June 13, 2022).

3. 28 U.S.C. § 1782(a).

4. 542 U.S. 241, 264-651, 159 L. Ed. 2d 355 (2004) (internal quotations and citations omitted).

5. 596 U.S. ____, slip op. at 2-3.

6. Id. at 3.

7. Abdul Latif Jameel Transp. Co. Ltd. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019). For a more in-depth discussion of the case, see our prior client alert.

8. 596 U.S. ____, slip op. at 3.

9. Id. at 4.

10. Id.

11. Id.

12. Id. at 5.

13. Id. (citing Nat'l. Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999)).

14. Id.

15. The Court consolidated ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 and AlixPartners, LLP v. Fund for Prot. of Investors' Rights in Foreign States, No. 21-518. The June 13, 2022 opinion resolves both cases.

16. 596 U.S. ____, slip op. at 11.

17. Id. at 6-7.

18. Id. at 9.

19. Id. at 10-11.

20. Id. at 11.

21. Id. (citing Servotronics Inc. v. Rolls-Royce PLC, 975 F.3d 689, 695 (7th Cir. 2020)). For a more in-depth discussion of the Servotronics, see our prior client alert.

22. Id. at 11.

23. Id. at 12.

24. Id. at 13.

25. Id. at 15.

26. Id. at 14.

27. Id.

28. Id. at 15.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.