International Arbitration Update: Discovery In Aid Of International Arbitration – Amici Weigh In Before Supreme Court Argument - Arbitration & Dispute Resolution

On December 10, 2021, the United States Supreme Court agreed to hear two cases—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—to decide whether 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," applies to private commercial arbitral tribunals or only to treaty-based arbitral tribunals.¹ The Court has consolidated the two cases and will hear oral argument on March 23, 2022.

Section 1782 does not define what qualifies as a "foreign or international tribunal" and federal courts are increasingly divided on whether the definition includes foreign-seated private commercial arbitral tribunals.² The U.S. Courts of Appeals for the Fourth and Sixth Circuits have held that a "foreign or international tribunal" as used in Section 1782 encompasses private commercial arbitral tribunals. On the other hand, the U.S. Courts of Appeals for the Second, Fifth, and Seventh Circuits have concluded that private commercial arbitral tribunals do not properly fall within this provision. Courts have generally agreed that a "foreign or international tribunal" includes a treaty-based arbitral tribunal.

By taking on both ZF Automotive and AlixPartners, the Supreme Court has the opportunity to define the full scope of Section 1782 for both private and treaty-based international arbitrations. Reflecting the high interest of the international arbitration community, a broad range of parties have filed amicus curiae briefs with the Court reflecting sharply different interpretations of Section 1782.

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. Specifically, 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

The relevant issue for parties to an international arbitration proceeding seeking U.S. discovery is whether a private commercial arbitration outside the United States qualifies as a proceeding before a "foreign or international tribunal" within the meaning of Section 1782. The statute's failure to define those terms and disagreement regarding the correct interpretation is the source of the current 3 – 2 circuit split.

Amicus Submissions⁵

A brief sampling of amicus briefs filed by business, academic, and government interests well illustrates the divergent views about the proper application of Section 1782 and the impact that it could have on international commercial arbitration proceedings around the world. Of twelve amicus briefs, four support the application of Section 1782 to commercial arbitration and five are against such application, while the remaining three are neutral. These amicus briefs address issues of high interest to the international arbitration community such as (i) international comity, (ii) the role of arbitral panels, (iii) Congressional intent behind Section 1782, (iv) where arbitral panels derive their authority from, and (v) the fundamental characteristics of international arbitration.

A group of arbitrators based primarily in the People's Republic of China filed an amicus brief,⁶ asserting that allowing Section 1782 discovery in aid of private commercial arbitration would weaken important qualities of arbitration such as efficiency, fairness, finality, and emphasis on party autonomy.⁷ They further argue that discovery under Section 1782 is not necessary for the fair and successful resolution of private commercial arbitrations because arbitration rules already allow for pre-hearing exchange of evidence, and arbitration disputes have been fairly resolved for years in the absence of Section 1782 discovery.⁸ Lastly, they point out that individual arbitral panels chosen to adjudicate a specific dispute cannot offer international comity—which Section 1782 is intended to promote—because each arbitral panel disbands after a particular dispute and cannot offer "any reciprocity for the discovery assistance offered by the U.S. courts under Section 1782."⁹

In its amicus brief, the U.S. government argues that Section 1782 does not encompass arbitration before any nongovernmental tribunal.¹⁰ The U.S. government reasons that the statutory phrasing, context, and history of a "foreign or international tribunal" point to a governmental adjudicator.¹¹ In line with this reasoning, the U.S. government asserts that neither private commercial arbitration proceedings nor treaty-based investor-state arbitration proceedings qualify as "proceedings in a foreign or international tribunal" within the meaning of Section 1782 because in either case, "the arbitral panel's role derives from the parties' consent, not governmental authority."¹² In the U.S. government's view, investor-state arbitration entails neither adjudication of a claim by a foreign court or quasi-judicial agency nor a resolution of a state-to-state claim by a body created by two or more states.¹³

The U.S. Chamber of Commerce has a similar perspective, but it was formed through a different analysis.¹⁴ The Chamber asserts that Section 1782 does not expressly authorize federal courts to issue subpoenas in support of private arbitral panels.¹⁵ Congress enacted statutes governing private arbitral tribunals and taking of evidence in support of those tribunals in 1925, but it did not include the term "arbitrators" in Section 1782, which Congress amended in 1964.¹⁶ According to the Chamber, this lack of comparable express authorization is evidence of Congressional intent not to allow discovery in support of private commercial arbitration.¹⁷ Moreover, the Chamber argues that in relevant portions of the United States Code, the statutory term at issue, "foreign or international tribunal," refers only to "proceedings in courts and other sovereign adjudicatory authorities formally created by the official acts of one or more sovereign governments."¹⁸

On the other hand, the International Arbitration Center in Tokyo submitted an amicus brief supporting the approach of the Fourth and Six Circuits.¹⁹ The Center argues that the Second Circuit's approach of dividing arbitrations into proceedings before a "state-sponsored," "governmental," or "quasi-governmental" forum versus proceedings before a "private" forum fails to provide clear guidance because it fails to account for the wide variety of proceedings, conducted in a broad range of legal and cultural contexts, in which governmental sponsorship, assistance, and enforcement vary from country to country and proceeding to proceeding.²⁰ The Center notes that as foreign proceedings embody unique local customs, history, and tradition, and are often not analogous to American practice, federal courts under the restrictive application of Section 1782 would have to engage in a fact-intensive examination of a sovereign's relationship to the proceedings.²¹ The Center calls for district courts to exercise discretion by considering the nature of the underlying proceeding to determine whether the applicant has made a reasonable demonstration that the evidence sought is "for use" in the arbitration.²²

Similarly, Federal Arbitration, Inc. ("FedArb") submitted an amicus brief urging the Court to reject the distinction between "private" and "state-sponsored" arbitral tribunals drawn by the Second Circuit.²³ ;FedArb contends that the text of Section 1782 standing alone "plainly includes foreign commercial arbitral tribunals, as they are tribunals within the ordinary, common sense, and objective meaning of that term."²⁴ To support this contention, FedArb cites (i) Supreme Court decisions that refer to arbitrators as "tribunals" and (ii) dictionaries that broadly construe the term "tribunal" as indicating a "body of persons having authority to hear and decide disputes so as to bind the disputants."²⁵ FedArb further stresses that commercial arbitration, while conducted in the sphere of private law, is nevertheless a public legal creation that operates under national and international legal authority.²⁶ Additionally, FedArb maintains that Section 1782 assistance should be available to both investor-state arbitrations and private commercial arbitrations because there is "no difference of substance" between the two types of arbitrations.²⁷ Rather, FedArb notes that both "share key characteristics that make it inappropriate to differentiate them for purposes of [Section 1782]."²⁸

A group of American arbitrators and private practitioners largely echoes FedArb's arguments.²⁹ They emphasize that Congress could have easily limited assistance under Section 1782 to "foreign or international courts" or "foreign or international judicial bodies" but did not.³⁰ They also dispute the distinction between commercial arbitrations and investor-state arbitrations because both types of arbitrations "are indistinguishable in all their essential functions."³¹ In an attempt to assure the Court that providing Section 1782 assistance to commercial arbitration will not be detrimental, they argue that there are enough safeguards in place: (i) Section 1782 permits, but does not require, district courts to order discovery; (ii) federal courts of appeals have long guided district courts in exercising their discretion under Section 1782; (iii) specific arbitral tribunals can inform a U.S. district court that they have no interest in such discovery; and (iv) arbitral tribunals can always exclude evidence obtained through Section 1782.³²

The International Court of Arbitration of the International Chamber of Commerce (ICC), which made a neutral submission, requests that the federal courts afford a very high degree of deference to the arbitral tribunal's views on discovery, should the Supreme Court find that Section 1782 is available in support of discovery in private commercial arbitration.³³ The ICC suggests that considering the views of the arbitral tribunal (i) is in line with the strong pro-arbitration policy of the Federal Arbitration Act; (ii) promotes efficiency by ensuring that the tribunal will readily admit evidence obtained through a Section 1782 request; and (iii) ensures an enforceable award.³⁴ Additionally, as expected from a leading global private arbitral governing body, the ICC underscores the fundamental principle of private commercial arbitrations that the arbitral tribunal has "the primary authority and control over the proceedings, including discovery matters."³⁵ The ICC closes its argument by emphasizing that the arbitral tribunal is best placed to assess discovery requests from the parties before it.³⁶

Supreme Court's Impending Review

With the Fourth and Sixth Circuits on one side, and the Second, Fifth, and Seventh Circuits on the other, the issue has been ripe for well over a year, and the international arbitration community remains keenly interested in the outcome. Now that the Supreme Court is scheduled to hear oral argument for the consolidated cases on March 23, 2022, it will finally have an opportunity to clarify these important issues once and for all. Following the oral argument, decisions in these cases are expected before the Court breaks for its summer recess in July.

Footnotes

1. For a more in-depth discussion of the underlying cases, please see our prior client alert, which is available at https://www.mofo.com/resources/insights/211216-international-arbitration-update.html.

2 As of this writing, the Third and Ninth Circuits have cases pending on this very issue. See, e.g., HRC-Hainan Holding Co., LLC v. Yihan Hu, No. 19-mc-80277-TSH, 2020 U.S. Dist. LEXIS 32125, at *2 (N.D. Cal. Feb. 25, 2020), appeal filed sub nom. In re: Application of HRC-Hainan Holding Co., LLC, No. 20-15371 (9th Cir. Feb. 28, 2020); In re EWE Gasspeicher GmbH, No. CV 19-MC-109-RGA, 2020 WL 1272612 (D. Del. Mar. 17, 2020), appeal filed sub nom. In re: Application of EWE Gasspeicher GmbH, No. 20-01830 (3d Cir. May 8, 2020).

3 28 U.S.C. § 1782(a).

4 542 U.S. 241, 264–65 (2004) (internal quotations and citations omitted).

5 In addition to seven amicus submissions discussed in this alert, the Court received five other amicus briefs. See Brief for Professor Yanbai Andrea Wang as Amicus Curiae Supporting Neither Party, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 31, 2022); Brief for Institute of International Bankers as Amicus Curiae Supporting Petitioners, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 31, 2022); Brief for Halliburton Company as Amicus Curiae Supporting Petitioners, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 31, 2022); Brief for Ashish Virmani as Amicus Curiae Supporting Respondents, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (March 1, 2022); Brief for Tamar Meshel, et al. as Amici Curiae Supporting Respondents, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (March 1, 2022).

6 Brief for Xu Guojian, et al. as Amici Curiae Supporting Petitioners, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 28, 2022).

7 Id. at 10.

8 Id. at 18–20.

9 Id. at 20–22.

10 Brief for the United States as Amicus Curiae Supporting Petitioners, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 31, 2022).

11 Id. at 15–27.

12 Id. at 29–30.

13 Id. at 30.

14 Brief for the Chamber of Commerce of the United States of America and Business Roundtable as Amici Curiae Supporting Petitioners, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 31, 2022).

15 Id. at 12.

16 Id.

17 Id. at 12–13.

18 Id. at 13.

19 Brief for International Arbitration Center in Tokyo as Amicus Curiae Supporting Neither Party, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 31, 2022).

20 Id. at 3–4, 8–9.

21 Id. at 15.

22 Id. at 20–24.

23 Brief for Federal Arbitration, Inc. as Amicus Curiae Supporting Respondents, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (March 2, 2022).

24 Id. at 8 (emphasis in original).

25 Id. at 8–11.

26 Id. at 17–18.

27 Id. at 23.

28 Id. at 24.

29 Brief for George A. Bermann, et al. as Amici Curiae Supporting Respondents, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (March 2, 2022).

30 Id. at 5 (emphasis in original).

31 Id. at 16.

32 Id. at 24–26.

33 Brief for International Court of Arbitration of the International Chamber of Commerce and the United States Council for International Business as Amici Curiae Supporting Neither Party, ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 (January 31, 2022).

34 Id. at 10–12.

35 Id. at 12–15.

36 Id. at 16–17.

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.