The Supreme Court Limits U.S. Discovery in Foreign Arbitration Proceedings

Jul 26, 2022 | Blog

On June 13, 2022, the Supreme Court issued an opinion reducing the scope of U.S. discovery for parties involved in foreign arbitration. The opinion centered around Title 28, Section 1782 of the U.S. Code (28 U. S. C. §1782), a discovery law that gives federal district courts the authority to compel entities in their district to give “testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal.” Essentially, a party that plans to be or is currently involved in a proceeding overseen by a “foreign or international tribunal” can file a petition in U.S. federal court seeking information in the U.S.

The Supreme Court’s decision addresses two separate cases that were consolidated because they both posed the same legal question: What exactly constitutes a “foreign or international tribunal”? More specifically, do private adjudicative bodies fall within the scope of §1782, or are these privileges reserved strictly for governmental and intergovernmental bodies?

ZF Automotive US, Inc. v. Luxshare, Ltd.

In the first case, Hong Kong-based company Luxshare was seeking discovery regarding allegations of fraud against ZF Automotive, a Michigan-based subsidiary of a German automotive parts manufacturer. The contract between these two companies dictated that any disputes should be resolved through arbitration proceedings governed by the German Arbitration Institute (DIS), a private organization based in Berlin. However, ZF Automotive resisted discovery, arguing that DIS did not meet the definition of a “foreign or international tribunal.”

AlixPartners, LLP v. Fund for Protection of Investors’ Rights in Foreign States

In the second case, a Russian corporation instigated a proceeding against Lithuania on behalf of a Russian investor who had invested in a failed Lithuanian bank. One of the administrators of the bank was also the CEO of AlixPartners, a consulting firm based in New York. The options for dispute resolution were outlined in a bilateral investment treaty previously made between the two countries. The arbitration forum that was ultimately chosen was “an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).” However, when the Russian Fund sought discovery pertaining to AlixPartners’ CEO, the company claimed that such an ad hoc arbitration did not qualify as a “foreign or international tribunal” and therefore should not fall within the scope of §1782.

In a unanimous vote, the Supreme Court held that §1782 applies only to governmental or intergovernmental adjudicative bodies and reversed the decisions of two lower courts in the process. Much of the opinion, authored by Justice Amy Coney Barrett, hinged upon the interpretation of definitions. The Court’s opinion first looks at the specific meaning of “foreign tribunal,” arguing that this phrase “more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation.” In other words, a foreign tribunal must be given sovereign authority by its country’s government—physical location alone is not enough to meet the threshold for §1782. Similarly, the Court came to the conclusion that an “international tribunal” refers to a body that two or more nations’ governments have given authority with which to adjudicate disputes.

The Court explained various rationales underlying its decision. It pointed out that §1782 was meant to facilitate judicial assistance to foreign countries in the interest of reciprocal cooperation between nations and that extending the same discovery privileges to private, non-government-affiliated arbitration forums would create little benefit to this end. Moreover, the Court noted that allowing §1782 to cover such a large swatch of discovery would put the statute in conflict with the Federal Arbitration Act (FAA), which governs domestic arbitrations. The FAA sets much narrower restrictions on discovery than §1782. Interpreting §1782 to include foreign private arbitrations would therefore “create a notable mismatch between foreign and domestic arbitration” by granting greater privileges to proceedings in other countries than to those at home (not to mention the burden this type of broad-range discovery could place upon U.S. district court resources).

In ZF Automotive, the private DIS arbitration panel was clearly a non-governmental adjudicating body and would therefore not qualify for discovery under §1782. In AlixPartners, the nature of the ad hoc arbitration panel was a little more nebulous since it was borne out of an international treaty between two countries. However, the Court determined that the ad hoc panel was “not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes” and was subsequently independent of any Russian or Lithuanian governmental authority. Since the arbitration panel exclusively derived its authority from the parties’ consent to arbitrate, it was essentially identical in function to a private arbitration panel.

This ruling effectively narrows the scope of §1782 for private dispute resolution proceedings outside of U.S. borders. The decision is significant in that §1782 often allows for broader discovery than many foreign arbitration forums and can also be used to compel non-parties to produce evidence. Parties who want to be able to utilize the discovery privileges of §1782 should draft dispute resolution provisions that either 1) designate governmental or intergovernmental bodies as forums for dispute resolution or 2) contain specific provisions allowing for more broad-based discovery in the context of arbitration.

However, the latter method does not guarantee that parties in private foreign proceedings will be able to duplicate all of the benefits of §1782 by simply including certain language in their arbitration agreements. Part of what makes §1782 such a powerful discovery tool is that it can be used to compel non-parties in the U.S. to produce evidence. But if it is merely an arbitration provision in a private foreign contract that is granting the expansive discovery, that discovery would typically only pertain to the parties engaged in that contract.

In light of the recent Supreme Court ruling, it seems clear that without an underlying statute for support, the parties in the arbitration have little authority with which to impose their terms on U.S.-based non-parties who are not part of the proceedings and who are not bound by the arbitration agreement. Even domestically, under the FAA, while pretrial discovery from third parties is allowed under certain circumstances, those circumstances are relatively narrow. And as the Supreme Court has stated, the U.S. is reticent to extend discovery privileges to foreign private arbitration forums that it does not extend to domestic arbitration forums.

While the Court’s decision was definitive for these two cases, the opinion still leaves some gray area regarding whether a variety of other types of arbitral bodies and forums would meet the Court’s definition of a “foreign or international tribunal” pursuant to §1782. As the Court noted, “Governmental and intergovernmental bodies may take many forms, and we do not attempt to prescribe how they should be structured.”

If you have further questions regarding arbitration proceedings or discovery, please contact Roger Barton and Kenneth Rashbaum.