Supreme Court limits the use of 28 U.S.C. § 1782 discovery in international arbitration
On June 13, 2022, the United States Supreme Court issued a long-awaited decision which substantially limits the use of 28 U.S.C. § 1782 in international arbitration.
28 U.S.C. § 1782(a) (Section 1782) authorizes US federal courts to provide assistance “for use in a proceeding in a foreign or international tribunal.” The Circuit Courts of Appeal were split on whether “foreign or international tribunal” included international arbitration. Prior to the Court’s decision, this issue had long been the subject of considerable disagreements among the courts, with some authorizing such assistance and others denying it. This decision largely puts an end to that debate.
The background surrounding the legal issues addressed in the Supreme Court’s recent decision has been discussed extensively in prior International Arbitration Alerts published on April 22, 2020 and October 26, 2020. As previously explained, Section 1782 permits any party or other interested person involved in proceedings before a foreign or international tribunal, or the tribunal itself, to make a request to a U.S. federal district court to compel discovery from a person or entity found in such district.
The Supreme Court had remained silent as to the scope of Section 1782 since issuing its landmark decision discussing the broad scope of the statute in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). Meanwhile, the use of Section 1782 increased significantly in recent years. Several questions regarding the scope of the statute have been vigorously contested in the lower courts, the most significant is whether international arbitration proceedings qualify as “foreign or international tribunals.”
The Second, Fifth, and Seventh Circuits held, in National Broadcasting Company, Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184 (2d Cir. 1999), Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999), and Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2020), that commercial arbitration tribunals are not “tribunals” for the purposes of Section 1782. By contrast, the Fourth and Sixth Circuits, in Servotronics, Inc. v. The Boeing Company; Rolls-Royce Plc, 954 F.3d 209 (4th Cir. 2020) and Abdul Latif Jameel Transportation Co. Ltd. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019) held that private arbitral tribunals are within the scope of the statute.
The Supreme Court took up this question in ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401; and AlixPartners, LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518, 596 U.S. __ (2022), which involved two separate cases in which a party to an arbitration applied for discovery assistance under Section 1782 in aid of the arbitration proceeding.
In ZF Automotive, Luxshare Ltd., a Hong Kong-based company sought discovery under Section 1782 from ZF Automotive US, Inc., a U.S.-based automotive parts manufacturer and subsidiary of a German company, for use in an arbitration under the Arbitration Rules of the German Institution of Arbitration e.V. (DIS), a private dispute-resolution organization based in Berlin. The district court, applying Sixth Circuit precedent regarding the meaning of “foreign or international tribunal,” granted Luxshare’s application and ordered discovery.
The second case, AlixPartners, involved AB bankas SNORAS, a Lithuanian bank that was nationalized by the Lithuanian government and declared insolvent as a result of fraud perpetrated by its majority shareholders. A Russian fund that purportedly assigned the rights of one of those principal shareholders, a Russian national, commenced an UNCITRAL arbitration against Lithuania pursuant to a bilateral investment treaty between Russia and Lithuania. The Russian fund then applied to the US District Court for the Southern District of New York under Section 1782 for discovery from third parties based in the United States. The district court granted the application and the Second Circuit affirmed, holding that the UNCITRAL tribunal was a “foreign or international tribunal” based on the authority it derived from the bilateral investment treaty.
The Supreme Court’s decision
In a unanimous decision authored by Justice Amy Coney Barrett, the Court examined whether the phrase “foreign or international tribunal” in Section 1782 includes private adjudicative bodies or only governmental or intergovernmental bodies. Analyzing the text of the statute, the Court observed that the word “tribunal” does not stand alone, but is instead situated within the phrase “foreign or international tribunal.” The Court noted that “attached to these modifiers, ‘tribunal’ is best understood as an adjudicative body that exercises governmental authority.” Id. at 7.
The Court further stated that this interpretation is supported for other reasons, including that: (1) the animating purpose behind Section 1782 is comity, so enlisting U.S. courts to assist private bodies would not serve this purpose; (2) extending Section 1782 to include private bodies would be in tension with the Federal Arbitration Act (FAA), which only permits the arbitration panel to request discovery and does not allow pre-arbitration discovery; and (3) the arbitral tribunals at issue were not governmental or intergovernmental adjudicative bodies, since their authority derived solely from private agreement.
Applying this standard, the Court determined that the DIS panel was not a “tribunal” within the meaning of Section 1782 because no government was involved in creating the panel or prescribing its procedures.
The Court acknowledged that the status of the ad hoc arbitration panel in the treaty dispute presented a harder question. It ultimately found that the panel was not a governmental adjudicatory body. The Court framed operative question as whether “these two nations intend to confer governmental authority on an ad hoc panel formed pursuant to the treaty?” and then evaluated whether there was sufficient evidence to “establish the intent of the relevant nations to imbue the body in question with governmental authority.” Id. at 13, 16. The Court concluded that the panel’s authority existed because Lithuania and the Russian fund consented to the arbitration, and “not because Russia and Lithuania clothed the panel with governmental authority.” Id. at 15.
The significance of ZF Automotive
The Supreme Court’s decision appears to substantially narrow the universe of arbitrations for which Section 1782 may be used. However, we will likely continue to see litigation in the lower courts over whether and when an arbitral tribunal may be considered to “exercise governmental authority.” This is because when the Court analyzed whether an ad hoc arbitration panel constituted pursuant to the bilateral investment treaty between Lithuania and Russia was a “governmental adjudicatory body,” it noted that “[n]one of this [analysis] forecloses the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority.” Id.
The decision did not directly address, for example, whether arbitrations under the ICSID Convention that are administered by the International Centre for Settlement of Investment Disputes, which are conducted under the auspices of the World Bank and afford member states some degree of control and influence over administrative matters, qualify for Section 1782 assistance.
The Court’s decision is likely to lead arbitration counsel to focus on other discovery tools, such as Section 7 of the FAA and Section 3102 of the New York Civil Practice Law and Rules (CPLR), to obtain judicial discovery to assist them in prosecuting and defending arbitrations. In particular, where parties are seeking discovery from persons or entities located in New York, CPLR Section 3102 specifically affords an opportunity to seek discovery “to aid in arbitration” and may therefore serve as a suitable replacement for Section 1782 assistance. We will likely see considerably more applications being made under those authorities now that Section 1782 is no longer broadly available in aid of arbitration.
Our global team continues to monitor developments as they arise and will update this alert as changes take place. To learn more about these developments, please contact any of the authors or your usual DLA Piper relationship attorney.