Supreme Court Sharply Limits Federal District Courts’ Authority to Order Discovery in International Arbitration Proceedings
Under 28 U.S.C. §1782, parties can ask district courts to compel persons within the courts’ respective districts to provide evidence in aid of proceedings before “a foreign or international tribunal.” A longstanding question has been whether §1782 extends to private international commercial arbitration or to ad hoc panels in investor-State arbitration.
Last week, a unanimous Supreme Court answered in the negative. In ZF Automotive US, Inc. v. Luxshare, Ltd., the Court held that only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” that can be assisted with this statutory supplemental discovery device.
Summary of the Case
The Supreme Court opinion, written by Justice Amy Coney Barrett, arose from two consolidated cases – one involving international commercial arbitration, the other concerning international investor-State arbitration.
In the first case, a Hong Kong company (Luxshare, Ltd.) alleged fraud after purchasing automotive parts from the Michigan-based subsidiary of a German company (ZF Automotive US, Inc.). The dispute was before a private dispute resolution organization in Germany. Relying on §1782, Luxshare applied for a discovery order with the US District Court for the Eastern District of Michigan. The District Court granted the request, compelling ZF to produce documents and make its officers available for deposition.
In the second case, Russian investors accused the Lithuanian state of expropriation when it nationalized a bank called SNORAS. Under the Russia-Lithuania Bilateral Investment Treaty (BIT), the investors’ representatives initiated proceedings before an ad hoc arbitration panel under the rules of the United Nations Commission on International Trade Law (UNCITRAL). The claimant filed a §1782 application in the Southern District of New York, where SNORAS’s appointed administrator resided and worked. This discovery request was approved.
Both orders were upheld on appeal by the Circuit Court of jurisdiction. However, the Supreme Court consolidated the cases and reversed both decisions.
Circuit Split on Private International Arbitration Resolved
The ZF Automotive decision resolves a circuit split on whether §1782 applies to proceedings before private international commercial arbitration panels. We have commented on this split in two prior alerts. The Second and Fifth Circuits have long held that private arbitrations do not qualify as “foreign or international tribunal[s]” under §1782, reasoning that the statute was only meant to include foreign governmental entities. On the other hand, the Fourth, Sixth, and Eleventh Circuits have all taken more permissive approaches, holding that §1782 applications in foreign private arbitrations can be properly brought before district courts.
The Supreme Court’s opinion sides with the interpretation by the Second and Fifth Circuits, confirming that §1782 discovery is unavailable in foreign private arbitrations.
More Clarity on the Meaning of “Foreign or International Tribunal”
While the Supreme Court completely ruled out §1782 discovery in private foreign or international commercial arbitrations, its holding on investor-State disputes is more nuanced. The Court expressly leaves open the possibility that some investor-State panels can still be considered “foreign or international tribunal[s].” In prior cases involving investor-State arbitrations, lower courts have applied a multi-factor test to determine if the panel is, in function, sufficiently similar to a governmental adjudicative body. Indeed, this was the approach taken by the Second Circuit in the SNORAS dispute. In ZF Automotive, the Supreme Court required a more straightforward inquiry: did nations “intend to confer governmental authority” on the panel?
Applying this principle, the Court decided that the Russia-Lithuania ad hoc panel lacked the governmental authority to qualify as a §1782 tribunal. Among the reasons offered were:
The ad hoc panel is not a pre-existing body, but was only formed to adjudicate the investor-State dispute.
The panel was not created by the Russia-Lithuania BIT.
The panel has no official affiliation with Lithuania, Russia, or any other governmental or intergovernmental authority.
Even though the Lithuanian government agreed to submit the dispute to an ad hoc panel, the panel derives its authority from the consent of the disputing parties, not from any source of sovereign power.
The Court leaves open the question of whether §1782 applies to institutional investor-State arbitration, such as the self-contained International Centre for Settlement of Investment Disputes (ICSID) arbitrations.
Private arbitral tribunals (domestic and international) may, on application of a party, require discovery from another party. And, the Federal Arbitration Act provides a mechanism for domestic and international private tribunals to compel evidence from third parties. These powers are not affected by ZF Automotive. The case, however, reflects the Court’s rejection of an interpretation that would have allowed parties to go to district court rather than the arbitration tribunal to seek such evidence. This is the latest in a series of decisions by the Supreme Court that leave all aspects of the conduct of arbitration to the arbitrators, and that limit a federal judicial role in cases subject to arbitration. By restricting the federal district courts’ role in providing a judicial discovery tool in aid of parties subject to private international arbitration, the decision puts domestic and international arbitration on the same footing.
Notably, the decision relied on legislative history and not just a purely textualist approach to statutory interpretation (of the kind currently favored by the Court). Because the definition of “tribunal” could encompass either private or governmental bodies, Justice Barrett’s opinion noted that Congress, when it added the phrase “foreign or international tribunal” to the statute back in 1964, merely sought to update Section 1782’s historic application solely to discovery in aid of proceedings in foreign courts. Thus the context suggests that the kind of tribunal that Congress meant is governmental, not private.
Multinational companies with a US presence will welcome the new limits on §1782, which reduces the risk of being subject to wide-ranging American-style discovery. Further, ZF Automotive will level the playing field between US and non-US parties. §1782 provided non-US parties with access to broad discovery against US parties, while US parties typically have no corresponding tool against opponents in foreign jurisdictions. The Supreme Court’s holding eliminates this imbalance in many circumstances. On the other hand, the new decision will negatively affect parties in private or ad hoc international arbitrations who otherwise would have relied on §1782 to obtain evidence from non-parties residing in the US.
It is important to note, however, that regardless of how US courts choose to interpret §1782, arbitral tribunals still retain their own authority to order discovery from parties, wherever they are located. Parties to international arbitration, therefore, should remain cognizant of the evidence-gathering rules which apply within the arbitral proceeding itself.
A full copy of the Supreme Court’s opinion can be found here.