On 13 June 2022, in ZF Automotive v. Luxshare, the U.S. Supreme Court held unanimously that 28 U.S.C. § 1782 does not allow discovery for use in most international arbitral proceedings. The Supreme Court held that only adjudicative bodies exercising “governmental” authority qualify as “foreign or international tribunals” for purposes of § 1782, and that international arbitral tribunals in both commercial and investment arbitration generally do not have the required governmental authority. As a result, § 1782 discovery generally will not be available for use in international commercial or investment arbitration.
U.S. Courts Had Disagreed on Whether § 1782 Applies to International Arbitrations
Prior to ZF Automotive, U.S. courts were split as to whether an international arbitral tribunal constituted a “foreign or international tribunal” under § 1782, which 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…”
The Second, Fifth, and Seventh Circuits had held that a private international arbitration tribunal was not a “tribunal” for purposes of § 1782. The Fourth and Sixth Circuits had held that it was. Accordingly, parties to international arbitrations had varied success utilizing § 1782 to obtain discovery with the help of U.S. courts for use in such proceedings.
In 2021, the U.S. Supreme Court Came Close to Deciding the Issue in Servotronics
In 2021, the Supreme Court came close to considering whether an international arbitral tribunal constituted a “foreign or international tribunal” under § 1782 in Servotronics Inc. v. Rolls Royce Plc, but that case was withdrawn before it could be decided. In that case, many interested parties, including the U.S. Department of Justice, had filed amicus curiae briefs proffering differing views on the question of whether an international arbitral tribunal may constitute a “foreign or international tribunal” under § 1782. (These views are detailed in a separate WilmerHale Client Alert by Danielle Morris and Sam Winter-Barker, dated 17 September 2021, available here.)
In ZF Automotive v. Luxshare, the U.S. Supreme Court Held that Discovery Under § 1782 Is Unavailable for Use in Most International Arbitrations
The Supreme Court decided in this Term to address the scope of § 1782 in two consolidated cases: ZF Automotive US, Inc., et al. v. Luxshare, Ltd., No. 21-401, concerning an international commercial arbitration, and AlixPartners, LLP, et al. v. Fund for Protection of Investors’ Rights in Foreign States, No. 21-518, concerning an international investment arbitration.
In ZF Automotive, the Hong Kong company Luxshare accused an American subsidiary of the Germany company ZF of fraud in a sales transaction. The contract provided that the parties would resolve any dispute in arbitration conducted pursuant to the Arbitration Rules of the German Arbitration Institute (“DIS”), an arbitration institution based in Berlin. The contract further provided that the arbitration would be seated in Munich pursuant to German law. Luxshare filed an ex parte § 1782 application in the U.S. District Court for the Eastern District of Michigan to obtain U.S. discovery from ZF in America and two of its senior officers. The District Court granted the application. ZF subsequently moved to quash the subpoenas, arguing that the arbitral tribunal convened under the DIS rules was not a “foreign or international tribunal” under § 1782. The Court of Appeals for the Sixth Circuit dismissed the motion and upheld the subpoenas. ZF appealed to the U.S. Supreme Court.
In AlixPartners, the Lithuanian central bank had appointed the CEO of AlixPartners, a New York-based consulting firm, to be the temporary administrator of a failing Lithuanian bank. The CEO authored a report on the bank’s financial status that was used by Lithuanian authorities to declare the bank insolvent and commence bankruptcy proceedings against it. A Russian corporation – which was assigned claims by an original Russian investor in the failed bank – initiated an arbitration under the Russia-Lithuania BIT claiming Lithuania had expropriated the Russian investor’s investment in the bank. The BIT provided a claimant investor four possible dispute resolution forums, including ad hoc arbitration under the UNCITRAL Rules. The claimant commenced an UNCITRAL investor-state arbitration under the BIT and filed a § 1782 application in the U.S. District Court for the Southern District of New York seeking U.S. discovery from AlixPartners’ CEO and the firm itself regarding the CEO’s role as temporary administrator. Lithuania argued that the UNCITRAL tribunal was not a “foreign or international tribunal” under § 1782, but was rather a private adjudicative body.
The Supreme Court consolidated the two cases to determine whether an arbitral tribunal may constitute a “foreign or international tribunal” within the ambit of § 1782. As in Servotronics, multiple parties filed amicus curiae briefs on both sides of the issue.
The Court issued a unanimous opinion in ZF Automotive v. Luxshare on 13 June 2022. In that opinion authored by Justice Amy Coney Barrett, the Court first held that an international arbitral tribunal qualifies as a “foreign or international tribunal” only if it is imbued with governmental authority by one or multiple states. The Supreme Court reached this determination by interpreting “tribunal” contextually together with “foreign and international.” Noting that “foreign” can mean both “belonging to another nation or country” or simply “from another country,” the Supreme Court found the former to be a better fit in the context of § 1782 because “‘[t]ribunal’ is a word with potential governmental or sovereign connotations.”
The Supreme Court further defined an “international tribunal” as one imbued by multiple nations with the power to adjudicate disputes. The Court reasoned that the alternative interpretation – that a tribunal is international merely because its adjudicators possess different nationalities – was unlikely to be the interpretation contemplated here. The Supreme Court found this interpretation to be confirmed by statutory history and the animating purpose of § 1782, which is to promote comity between states. The Supreme Court also looked to the Federal Arbitration Act (FAA), noting that interpreting “foreign or international tribunal” in § 1782 to include international commercial and investment tribunals would create a tension between the more limited scope of discovery available in private domestic U.S. arbitration under the FAA and the broader scope of discovery available in private international arbitration under § 1782.
Applying this definition, the Supreme Court found neither of the international arbitral tribunals at issue to qualify as a “foreign or international tribunal” exercising governmental authority conferred by one or more states. Because the tribunal in ZF Automotive was convened under the rules of a private arbitral institution, the Supreme Court found it easy to determine that it was not a “foreign or international tribunal” within the meaning of § 1782. The Supreme Court recognized that the analysis in AlixPartners, an investor-state arbitration, presented a “harder question” given that “[a] sovereign is on one side of the dispute, and the option to arbitrate is contained in an international treaty rather than a private contract.” Nevertheless, the Supreme Court ultimately came to the same conclusion, finding no evidence that the governments of Russia or Lithuania “intended that the ad hoc panel exercise governmental authority.”
In determining that neither of the international arbitral tribunals at issue qualified as “foreign or international tribunals” under § 1782, the Supreme Court cautioned that “[n]one of this forecloses the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority.” In doing so, the Supreme Court hinted at certain indicia that may render international arbitral tribunals “foreign or international tribunals” under § 1782. These include the extent of the government’s involvement in the establishment of the tribunal and its procedures, including through government funding, and whether the tribunal is affiliated with or otherwise dependent on the state.
These indicia currently constitute only dicta by the Supreme Court, and it is yet to be seen how lower courts in the United States will interpret them moving forward. However, the extent of government involvement required to demonstrate the exercise of “governmental authority” by an arbitral tribunal almost certainly goes far beyond the role of a state even in a typical investment arbitration, much less international commercial arbitration. In fact, the Supreme Court found that investment arbitrations are virtually indistinguishable in form and function from commercial arbitrations, further noting that such a tribunal “exists because [the parties to the dispute] consented to the arbitration, not because [the state parties to the treaty] clothed the panel with governmental authority.”
It will be interesting to see how U.S. courts view arbitration under the ICSID Convention and, in particular, proceedings before the EU Multilateral Investment Court (MIC) as fitting into this framework. The MIC is intended to be a standing body, featuring judges appointed by state parties and quasi-judicial procedures, including appellate review, more typical of domestic courts. On the other hand, jurisdiction in a particular investment dispute will still derive from the consent of the parties, and the resulting award is still intended to be enforceable in virtually the same manner as any other arbitral award resulting from an investment arbitration.
Given the high bar imposed by the Supreme Court, § 1782 discovery will now be unavailable for use in most international arbitrations, whether based in a contract or in an investment treaty. However, discovery under § 1782 may nonetheless be available for use in certain special arbitral tribunals imbued with sufficient governmental authority or for use in aid of arbitration-related litigation in foreign courts, including proceedings to recognize and enforce arbitral awards or proceedings to annul an arbitral award.