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Volume XII, Number 180

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Supreme Court Limits Section 1782 Discovery: A Sea Change in the Role of Us Courts in International Arbitration

28 U.S.C. § 1782 (Section 1782) allows parties (and even non-parties) to obtain discovery of documents or testimony in the United States in aid of matters before “foreign or international tribunals.” For years, US federal circuits have been divided over whether Section 1782 can be used to obtain information and documents in connection with international arbitrations or whether its application is limited to proceedings before foreign courts and other similar matters. Stakeholders have sought clarity on the breadth of the statute’s application, and the matter has made its way to the Supreme Court of the United States before but was settled ahead of a decision being made. In December 2021, the Court granted cert in two cases (Zf Automotive US, Inc., et al. v. Luxshare, Ltd., an international commercial arbitration, and AlixPartners, LLP v. Fund for Protection of Investors’ Rights in Foreign States, an ad hoc investment arbitration under the Lithuania-Russia bilateral investment treaty (BIT)), which were consolidated. The question that faced the Court: Does Section 1782 cover international arbitration? If so, in what forms?

Maintaining its recent trend of taking a textualist approach to arbitration-related decisions, the Supreme Court recently weighed in on this long-debated question. On June 13, 2022, in a unanimous decision authored by Justice Amy Coney Barrett, the Court held that neither commercial nor ad hoc investor-state arbitration cases fall within the scope of Section 1782 because they do not qualify as a “foreign or international tribunal.”

IN DEPTH


THE USE OF 28 U.S.C. § 1782 IN INTERNATIONAL ARBITRATION

Section 1782 has historically been construed broadly and has been a key tool in obtaining sweeping discovery in international arbitrations. The statute permits any “interested person” to file a “1782 application” for a relevant US district court to order the production of documents or testimony from a person who is present in the district. As the Supreme Court noted in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the term “interested person” extends to any non-litigant with a reasonable interest in obtaining the evidence. The fruits of Section 1782 discovery must relate to proceedings in a “foreign or international tribunal,” a contentious requirement that lies at the heart of the Court’s recent decision. However, the statute fails to define the phrase “foreign or international tribunal,” leaving courts to fill in the gaps.

In Intel, the Supreme Court recognized that Section 1782’s use of “foreign or international tribunal” is not limited to foreign courts, holding that a branch of the European Commission—the Directorate-General for Competition—met the requirement. However, US circuit courts have diverged on the question of whether the statute applies to international commercial and investor-state arbitrations as private forms of dispute resolution. The US Court of Appeals for the Fourth and Sixth Circuits have held that Section 1782 covers “private, contracted-for commercial arbitrations.” (See, e.g., Servotronics, Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020); Abdul Latif Jameel Trans. Co. v. FedEx Corp., 949 F.3d 710, 730 (6th Cir. 2019).) Other circuits, including the Second, Fifth and Seventh Circuits, have taken a narrower approach, limiting their interpretation of “tribunal” to only “state-sponsored, public, or quasi-governmental” forums. (See, e.g.Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 975, 692–96 (7th Cir. 2020).)

PREVIOUS CASES BEFORE THE SUPREME COURT

While the Supreme Court originally signaled its intent to decide on this issue in Servotronics, Inc. v. Rolls-Royce PLC and Boeing Co., the litigants in that case settled before oral arguments, postponing the Court’s pronouncement on whether Section 1782 applies to private international arbitrations. On December 10, 2021, the Court granted review of ZF Automotive US, Inc. v. Luxshare, Ltd., a case involving arbitration under the rules of the German Arbitration Institute (DIS) in which a private party sought Section 1782 discovery from its private opponent and the officers of the private opponent. The district court granted the request and the respondent moved to quash, arguing that the DIS arbitrators were not a “foreign or international tribunal.”

The second of the consolidated cases before the court, Alixpartners, LLC v. Fund for Protection of Investors’ Rights in Foreign States, involves an ad hoc investor-state arbitration under the Lithuania-Russia BIT. The Second Circuit permitted Section 1782 discovery, affirming the district court’s rejection of the objecting party’s argument that arbitral tribunals (also sometimes referred to as arbitration panels in the United States) under the BIT do not meet the statutory requirement.

THE SUPREME COURT’S RESTRICTIVE APPROACH

The Supreme Court held that neither scenario in the consolidated cases satisfies Section 1782’s requirement that the discovery ordered be for use in a proceeding before a “foreign or international tribunal.” In the opinion, Justice Barrett interpreted the phrase to cover only “governmental or intergovernmental adjudicative bod[ies]…imbued with governmental authority,” and to exclude contract-based tribunals governing private disputes. The Court further clarified that “foreign tribunals” are those imbued with the sovereign authority of a single nation while “international tribunals” are those granted governmental authority by two or more nations.

Operating under this restrictive definition, the Supreme Court concluded that the DIS tribunal at issue in ZF Automotive failed the test because it was not created by a sovereign government nor were its procedures prescribed by governmental authority. Justice Barrett rejected Luxshare’s argument that commercial arbitration tribunals are indeed “governmental” in that the law of the forum in which an arbitration sits “governs some aspects of arbitration and courts play a role in enforcing arbitration agreements.” Under this approach, many international commercial arbitration tribunals are outside the scope of Section 1782. It remains unclear whether the decision bars Section 1782 requests in relation to disputes conducted at the Permanent Court of Arbitration (PCA), an intergovernmental organization established under a treaty between 122 states. Admittedly, very few commercial disputes are conducted at the PCA.

The Supreme Court found the issue less straightforward in Alixpartners. In that case, Lithuania was a party to the dispute, and the agreement to pursue arbitration was rooted in a BIT instead of a private contract. The Court’s analysis centered on whether Lithuania and Russia intended to confer governmental authority on the ad hoc arbitral tribunal that was convened as contemplated in the BIT. Justice Barrett concluded that the tribunal operated independently of the state parties. Because the BIT offered the choice of several forums for dispute resolution, including national courts, neither state intended to grant sovereign authority to the arbitral tribunal. The Court distinguished state-state proceedings under the same BIT where both states designate the International Court of Justice (ICJ) as appointing authority. According to the Court, a tribunal appointed in an ICJ matter would possess governmental authority.

The Supreme Court’s decision marks a significant change in the availability of discovery assistance from US courts in international arbitrations. The Court’s restrictive approach would appear to put an end to Section 1782 discovery in cases involving international commercial arbitration—and in at least some treaty-based arbitrations.

WEIGHING THE PROS AND CONS: IMPLICATIONS FOR CURRENT AND FUTURE INTERNATIONAL ARBITRATION

The Supreme Court’s decision has brought clarity to the ongoing question of whether Section 1782 extends to international commercial arbitration. It also closes a gap that has existed between the prevalent practice in the United States and everywhere else in the world. The invocation of Section 1782 in US courts has, for many years, been instrumental in obtaining broader discovery than would be possible in the arbitration itself and also created a gap between what was possible to obtain in domestic versus international arbitrations.

US courts have generally been viewed as taking a notably more permissive approach to discovery than courts in other countries. The Supreme Court’s decision limits this reputational differentiator, for better or for worse. It also puts foreign and domestic arbitration back on equal footing concerning the question of who may request discovery of whom.

But did the drafters of Section 1782 mean to preemptively exclude private arbitration when the practice wouldn’t become commonplace until well after the statute’s enactment? The Supreme Court’s textualist interpretation of “foreign and international tribunals” suggests they did. Many, however, are yet to be convinced. The Court’s decision may hinder the ability to obtain desired discovery should it fall outside the scope of what is permitted under the relevant arbitration rules or applicable law. The outcome might even incentivize litigation on the question of whether, and when, an arbitral tribunal exercises governmental authority. Parties may also be more inclined to try to pursue ancillary litigation to the extent permitted by the applicable rules or law.

Many are left wondering whether other types of tribunals similarly fall outside the scope of Section 1782. For instance, arbitrations administered by the International Center for Settlement of Investment Disputes (ICSID) may qualify as meeting the burden of exercising “governmental authority” because ICSID was created under a multilateral treaty to which states are parties. Similarly, there have been questions about the applicability of Section 1782 to disputes before entities like multilateral investment courts, aka tribunals established pursuant to the authority of multiple states to resolve investor-state disputes. Should these forums still qualify as “foreign or international tribunals,” the use of Section 1782 in international arbitration cases may not be eviscerated.

While certain questions remain unanswered, such as how the Supreme Court’s decision will affect the status of Section 1782 applications currently pending before US courts, one thing is certain: The outcome of ZF Automotive and AlixPartners will change the landscape of the availability of discovery in the United States in aid of international commercial and even investor-state arbitrations.

Laura Sabia, a summer associate in the New York office, also contributed to this article.

© 2022 McDermott Will & EmeryNational Law Review, Volume XII, Number 167
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About this Author

Lisa Richman, Attorney, McDermott
Attorney

Lisa M. Richman focuses her practice on international dispute resolution matters, with a particular emphasis on international commercial arbitration and public international law. She has experience representing clients in a broad range of matters, including in the areas of international commercial and investment arbitrations, securities enforcement, securities litigation, general commercial litigation disputes and insurance coverage.

202-756-8090
Maria Cristina Rosales del Prado Special Legal Consultant McDermott Will & Emery
Special Legal Consultant

María Cristina (MC) Rosales del Prado focuses her practice on international dispute resolution, with a special emphasis on international arbitration. She has experience in dealing with litigation and arbitration matters, with cross-border experience in the US, Europe and Latin America.

MC has also represented clients, including sovereign states, financial institutions, high-net-worth individuals, and multinational corporations, in complex litigations and arbitrations proceedings under the rules of the ICSID, ICC, DIS, LCIA, AAA and UNCITRAL...

202-756-8936
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