Powerful US discovery tool still allowed for international litigation but not commercial arbitration | Eversheds Sutherland (US) LLP
On June 13, 2022, the US Supreme Court decided ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401, holding that Section 1782 requires a “foreign or international tribunal” be a tribunal imbued with governmental authority. The unanimous opinion brought an end to a long-standing circuit split about the availability of Section 1782 “in aid of” international commercial arbitration. Although there has been no circuit split as regards to the question of whether Section 1782 provides an avenue for discovery in the investment treaty context, the decision shed some light on that as well (albeit without resolving it decisively). The availability of Section 1782 in aid of foreign court litigation has not been impacted in any way.
28 U.S.C. § 1782 (Section 1782) allows parties involved in cross-border litigation (or other “interested parties”) to apply to a US court to obtain discovery of documents or testimony in aid of matters (or contemplated matters) before “foreign or international tribunals.” For years, US federal circuits have been split over whether Section 1782 can be used to obtain information and documents in connection with international arbitrations or whether the statute is limited to proceedings before foreign courts.
In December 2021, the Court granted certiorari in two Section 1782 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)). These two cases were consolidated before the Supreme Court.
The question before the Court was whether Section 1782 covers international arbitration, and if so, what kinds of international arbitration does the statute cover? In the Court’s unanimous opinion delivered by Justice Barrett, it held that “only a governmental or intergovernmental adjudicative body constitutes a foreign or international tribunal” under Section 1782. The Court relied heavily on the modifiers “foreign or international”, noting that, standing alone, “tribunal” need not mean a formal court, but, read in the context of the modifiers “foreign or international”, Section 1782’s reference to a “tribunal” is best understood to refer to an adjudicative body that exercises governmental authority.
Under this more restrictive interpretation, the Court concluded that the tribunal in ZF Automotive did not meet the definition of “foreign or international tribunal.” This case involved an arbitration operating under the rules of the German Arbitration Institute (DIS). Luxshare argued that commercial arbitration tribunals are indeed “governmental” because the law of the forum in which an arbitration sits “governs some aspects of arbitration and courts play a role in enforcing arbitration agreements.” Justice Barrett rejected this argument, finding that the DIS tribunal was not created by a sovereign government, nor were its procedures prescribed by governmental authority. That part of the case squarely resolves the question of whether Section 1782 discovery is available in aid of international commercial arbitration—it is not.
The Supreme Court found the Alixpartners case to be a closer call. In Alixpartners, Lithuania was a party to the dispute, and the dispute resolution clause providing for arbitration rested within a BIT instead of a private contract. But the tribunal in that case was an ad hoc tribunal formed pursuant to the UNCITRAL Rules. The Court’s analysis focused on whether Lithuania and Russia intended to confer governmental authority on the ad hoc arbitral tribunal to make it fit the definition of “foreign and international tribunal” as discussed above. The Court ultimately found that the tribunal operated independently of the State parties because the BIT offered several alternative forums for dispute resolution, which included national courts. Thus, neither state intended to grant sovereign authority to the ad hoc tribunal. Justice Barrett distinguished proceedings involving states on both sides under the same BIT, such as cases where both states designate the International Court of Justice (ICJ) as an appointing authority. The Court noted that a tribunal appointed in an ICJ matter would possess governmental authority. The question of whether a tribunal formed within the context of the ICSID system would have the required authority remains an open question, for now.
In sum, the ZF Automotive decision conclusively closes the door on using Section 1782 to obtain discovery in aid of international commercial arbitration proceedings, but it remains available as a tool for obtaining same in aid of foreign litigation and, potentially, in investor-state matters if certain conditions are met.