Supreme Court Narrows Availability of United States Discovery for International Arbitration
Insights Michael S. Lazaroff · June 28, 2022
A unanimous Supreme Court on June 13 determined that 28 U.S.C. §1782 (“Section 1782”) does not permit United States courts to order discovery for foreign or international “private adjudicatory bodies”. ZF Auto. US, Inc. v. Luxshare, Ltd., No. 21-401, 2022 WL 2111355, *3 (2022)(“ZF Automotive Decision”). Rather, the Supreme Court held that Section 1782 only permits discovery for foreign or international “governmental or intergovernmental adjudicative bodies”. Id. The decision clarifies that Section 1782 does not permit discovery for use in any private international arbitration. However, the decision leaves open the question of which type of arbitral tribunal may constitute a “governmental or intergovernmental adjudicative body” and still be ripe for discovery pursuant to Section 1782.
Section 1782 by its terms permits a district court in the United States to order discovery “for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation”. 28 U.S.C. §1782. Prior to the ZF Automotive Decision, lower courts disagreed concerning if and when Section 1782 permitted discovery for use in international arbitration. In the one case where the Supreme Court had previously considered a different aspect of Section 1782, it had quoted in dicta a statement that a “tribunal” includes “investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies”. See Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 244-45 (2004). This caused many courts to determine that Section 1782 permitted discovery for private commercial international arbitration, while other courts disagreed. See, e.g., Servotronics, Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020) (private arbitral panel in United Kingdom was “foreign or international tribunal”); In re Application to Obtain Discovery for Use in Foreign Proc., 939 F.3d 710, 724 (6th Cir. 2019) (discovery available under Section 1782 for private international arbitration under the rules of the Dubai International Financial Centre-London Court of International Arbitration); Servotronics, Inc. v. Rolls-Royce PLC, 975 F. 3d 689 (7th Cir. 2020), cert. granted, 141 S. Ct. 1684 (2021), and cert. dismissed, 142 S. Ct. 54 (2021) (no discovery under Section 1782 for private international arbitration because a “foreign or international tribunal” is a “state-sponsored, public or quasi-governmental tribunal”); El Paso Corp. v. La Comision Ejecutiva Hidroeléctrica Del Rio Lempa, 341 Fed. Appx. 31 (5th Cir. 2009) (no discovery as UNCITRAL Arbitration between state-owned El Salvadoran utility company and a private party is not a “foreign or international tribunal”) (citing Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880, 882-83 (5th Cir. 1999)); NBC v. Bear Stearns & Co., 165 F.3d 184, 188-189 (2d Cir. 1999) (arbitral bodies created by governments or intergovernmental agreements are “tribunals” for the purposes of § 1782, but that arbitral bodies created by private parties are not foreign or international tribunals).
The ZF Automotive Decision resulted from the consolidation of two underlying appeals. The first appeal (ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401) related to a request for discovery under Section 1782 for use in a private commercial arbitration between two private companies in accordance with the Arbitration Rules of the German Institution of Arbitration (“DIS Arbitration”). The district court determined in that case that discovery was available under Sixth Circuit precedent for this private DIS Arbitration and the Sixth Circuit did not stay that order pending appeal. The second appeal (AlixPartners, LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518) concerned an ad hoc UNCITRAL arbitration under a bilateral investment treaty between the Lithuanian government and a Russian corporation (“Lithuanian Arbitration”). The Second Circuit held that discovery could proceed because the Lithuanian Arbitration was not like private arbitration but rather was a foreign or international arbitration.
Justice Barrett writing for a unanimous Court explained that both appeals depended upon the correct interpretation of the phrase “foreign or international tribunal” in Section 1782. The Court stated that while the word “tribunal” standing alone does include private adjudicatory bodies, Section 1782 uses the phrase “foreign or international tribunal” which is more limited because the term “tribunal” is qualified. The Court first found that the phrase “foreign tribunal” means a “governmental body” belonging to another nation or country. “[T]he tribunal must possess sovereign authority conferred by that nation”. It then found that the phrase “international tribunal” means “a tribunal imbued with governmental authority by multiple nations”. The court based these interpretations on the dictionary definitions of the words that it thought most directly fit the context of the statute.
The Court also explained that its interpretations were supported by the history of Section 1782 and by comparison to the FAA. The Court explained that Section 1782 “has been about respecting foreign nations and the governmental and intergovernmental bodies they create”; the “animating purpose of §1782 is comity”. Thus, limiting the reach of Section 1782 to assisting bodies exercising governmental authority is consistent with the history and purpose of Section 1782. The Court also explained that limiting Section 1782 in this fashion makes sense because the Federal Arbitration Act (the “FAA”) which governs domestic arbitration provides for more limited discovery for use in domestic arbitration. “It’s hard to conjure a rationale for giving parties to private parties to foreign arbitrations such broad access to federal-court discovery assistance in the United States while precluding such discovery assistance for litigants in domestic arbitration.”
The Court then determined that neither arbitration panel in the two appeals before it constituted governmental or intergovernmental adjudicative bodies. The DIS Arbitration was (a) between private parties; (b) agreed to in a private contract; (c) utilized a private dispute resolution organization using its own arbitral rues; and (d) the panel was formed by the parties. “No government is involved in creating the DIS panel or prescribing its procedures”. Thus, the DIS Arbitration is not a “foreign or international tribunal” under Section 1782.
The Lithuanian Arbitration was a “harder question”. One party was a sovereign nation (Lithuania) and the right to arbitrate in that case stemmed from an international bilateral investment treaty. However, the Court explained that the treaty at issue provided the parties a choice of submitting the dispute to a court, a pre-existing arbitral body or an ad hoc panel. The parties in this matter chose an ad hoc arbitration panel. The treaty did not provide this panel with any governmental authority. “[T]he treaty does not itself create the panel; instead, it simply references the set of rules that govern the panel’s formation and procedure if an investor chooses that forum.” The ad hoc panel acts independently and is not affiliated with any country or governmental entity. Ultimately, the Court concluded that, in this case, the panel’s authority derived from the parties’ consent and not from any government authority. The Court explained that “a body does not possess governmental authority just because nations agree in a treaty to submit to arbitration before it. “
The Court’s opinion about the DIS Arbitration that private arbitrations are not subject to discovery under Section 1782 is consistent with the opinions of the Second, Fifth and Seventh Circuits and clarifies this aspect of Section 1782. Litigants in private international arbitration will no longer be able to utilize Section 1782 to obtain discovery for those arbitrations.
However, the decision about the Lithuanian Arbitration had just the opposite impact. Prior to the ZF Automotive Decision, to the extent courts considered the issue, courts generally assumed that an arbitral tribunal constituted under a bilateral investment treaty “unquestionably would be ‘for a use in a proceeding in a foreign or internal tribunal’”. See In re Chevron Corp., 633 F.3d 153, 161 (3d Cir. 2011); see also Islamic Republic of Pakistan v. Arnold & Porter Kaye Scholer LLP, 2019 WL 1559433, at *7 (D.D.C. Apr. 10, 2019) (District courts “have regularly found that arbitrations conducted pursuant to Bilateral Investment Treaties, and specifically by the ICSID, qualify as international tribunals under the statute”). Yet, the Court in the ZF Automotive Decision found despite the fact that the Lithuanian Arbitration was pursuant to a treaty and had a governmental entity as a party, this arbitration still was not a “foreign or international tribunal”.
The Court left open the possibility that in a different circumstance, “sovereigns might imbue an ad hoc arbitration panel with official authority”. The Court though did not describe what circumstances would provide sufficient “official authority”. The Court rejected the comparison of the arbitral panel here to the adjudicatory body “in the dispute over the sinking of the Canadian ship I’m Alone, which derived from a treaty between the United States and Great Britain” or to the United States-Germany Mixed Claims Commission. The Court explained that the main “inquiry is whether those features and other evidence establish the intent of the relevant nations to imbue the body in question with governmental authority”. The Court pointed out that, for example, the treaty in the case of the Mixed Claims Commission provided more involvement by the sovereigns in the arbitral process than was the case in the Lithuanian Arbitration. The Lithuanian Arbitration did not have this degree of governmental involvement.
However, as the Court noted, in other cases, it is possible that there would be sufficient official authority to permit discovery pursuant to Section 1782. It is just not clear in which cases. For example, if the arbitral panel were to be before an ICSID tribunal whose authority and rules and procedures are part of and/or derived from a multilateral treaty this might be sufficient official authority. We can anticipate that courts will now be faced with cases raising the issue of which arbitrations have sufficient official authority to permit discovery under Section 1782.
Michael Lazaroff is a partner in the Rimon Litigation group in the New York office. He is an experienced trial and appellate lawyer with over two decades of experience in complex commercial litigation and arbitration representing both defendants and plaintiffs. His extensive experience includes international litigation and arbitration, multidistrict actions, class actions, partnership disputes, antitrust litigation and counseling, copyright litigation, complex contract disputes, and pharmaceutical litigation Read more about Michael.