The Supreme Court Limits 28 U.S.C § 1782 Discovery in Aid of International Arbitration

Share:

Introduction

28 U.S.C. § 1782 (“Section 1782”) is a United States statute that allows parties to obtain discovery of documents or testimony from a relevant district court in aid of a “proceeding in a foreign or international tribunal.” Federal courts have been divided for years over whether Section 1782 is limited to proceedings before foreign courts or tribunals or whether it can be used to obtain information and documents in connection with international arbitration. Consolidating ZF Automotive US, Inc., et al., v. Luxshare, Ltd. and AlixPartners, LLP, et al. v. The Fund for Protection of Investors’ Rights, the Supreme Court (“Court”) recently ruled that Section 1782 does not permit federal courts to order discovery for use in investment treaty arbitrations or foreign private commercial arbitrations. Continuing the Court’s textualist approach trend to arbitration-related decisions, Justice Amy Coney Barrett authored the unanimous opinion, writing that under Section 1782, only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal.”[1]

The two cases, now consolidated, involve arbitration proceedings abroad where a party sought discovery in the United States pursuant to 28 U. S. C. §1782(a). AlixPartners, LLP involves a failed Lithuanian bank which was declared insolvent by Lithuanian authorities. The Fund for Protection of Investors’ Rights in Foreign States (“Plaintiff”) initiated a proceeding against Lithuania. The Plaintiff claimed that Lithuania expropriated investments, initiating the proceeding under a bilateral investment treaty between Lithuania and Russia. ZF Automotive involves a Hong Kong-based company, Luxshare Ltd., alleging fraud in a sales transaction with ZF Automotive. ZF Automotive is a Michigan-based subsidiary of a German corporation. Signed by all parties, the sales contract provided that all disputes would be resolved under the Arbitration Rules of the German Institution of Arbitration by three arbitrators.

Section 1782

            Section 1782 historically acted as a powerful discovery tool, allowing parties in international proceedings to obtain evidence located in the United States, which otherwise would not be available. The parties sought the discovery “in accordance with the federal rules of civil procedure.”[2] In 1930, Congress passed a law enabling any member of a commission or tribunal to issue subpoenas to aid in the taking of evidence in cases. Congress enacted Section 1782 in 1948, enabling discovery to be obtained by foreign courts in the aid of litigation, while a separate “strand” of legislation, focusing on “international tribunals,” was progressing.[3] In 1958, Section 1782 covered “any judicial proceeding” in “any court in a foreign country,” but Congress expanded the provision in 1964 to cover proceedings in a “foreign or international tribunal.”[4] As the Court noted in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 259 (2004), the shift from 1958 to 1964 opened the door for “the possibility of U.S. judicial assistance in connection with administrative and quasi-judicial proceedings above.”

Under §1782, district courts are permitted to order testimony or the production of evidence “for use in a proceeding in a foreign or international tribunal.” In ZF Automotive US, Inc., et al., v. Luxshare, Ltd., the Court noted that the word “tribunal” can have two different meanings: 1) it can act as a synonym for “court,” or 2) more broadly to encompass any adjudicatory body. Congress expanded the prior version of §1782 to include proceedings in a “foreign or international tribunal,” as discussed in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 258. However, when “tribunal” is read in context and attached to the modifiers “foreign or international,” the phrase of the statute refers to an adjudicative body exercising governmental authority. Per statutory history, Congress used “tribunal” in the broader sense, referring to any adjudicative body. Because “tribunal” belongs to the phrase “foreign or international tribunal,” “foreign tribunal” should be interpreted first. “Foreign” could have been used in one of two ways by Congress: 1) it could mean “belonging to another nation or country,” meaning “foreign tribunal” would be interpreted as a governmental body, or 2) it could be interpreted more broadly, meaning “from” another county, including private adjudicate bodies. Because “foreign” modifies a word with potential governmental or sovereign connotations, it has a more governmental meaning. The word “Tribunal” alone, has a potential governmental or sovereign connotation. Thus, “’foreign tribunal’ more naturally refers to a tribunal belonging to a foreign nation that to a tribunal that is simply located in a foreign nation.” “International,” as part of the phrase “international tribunal,” can have two meanings: 1) involving or of two or more “nationalities,” or 2) involving or of two or more “nations.” Because an adjudicative body would be “international” if it had adjudicators of different nationalities, the first definition is unlikely. If the first were true, the availability of discovery would then turn on the national origin of the adjudicators. A tribunal then is “international” when those nations have “imbued the tribunal with official power to adjudicate disputes.” Therefore, “foreign tribunal” and “international tribunal” complement each other.

But the purpose of Section 1782 is to enable an applicant to apply to a United States Federal District Court for discovery “for use in” a foreign proceeding. Allowing district courts to help private bodies still serves this purpose. Justice Barrett focused the end of the opinion on the tension this would cause with the FAA, because the FAA allows far less discovery than Section 1782. But Section 1782 focuses on discovery options for participants in international arbitration, not domestic arbitration. While Section 1782 expands discovery of witnesses and documents located in the United States, its use is still international.

Application of the Supreme Court’s Holding

In applying their holding to the AlixPartners case, the Court noted that the ad hoc arbitration panel at issue is a sovereign on one side of the dispute, and the option to arbitrate is not contained in a private contract. Instead, it’s contained in an international treaty, making the analysis more complex. While there is an argument that the ad hoc panel is intergovernmental, neither the treaty’s existence nor Lithuania’s presence is dispositive since they can structure the dispute resolution as they see fit. However, the court did recognize that the decision in this case does not preclude the possibility that sovereigns might imbue an ad hoc arbitration panel with governmental authority in other circumstances.[5] But the Court failed to give any indication as to how to structure governmental and intergovernmental bodies to exercise governmental authority.  

Questions Left Unanswered by the Court

Regardless of whether you agree with the Court’s decision or wish the Court expanded Section 1782 to include private foreign or international arbitrations, clarity regarding the application of Section 1782 to international commercial arbitration proceedings between private parties, was needed after 17 years of confusion among the lower courts. But with the questions left unanswered by the Court, there likely will be more litigation, requiring close analysis on a case-by-case basis.

The below questions elaborate further on some of the issues that the parties involved in international commercial arbitrations may face–

• Do administrative tribunals or quasi-judicial bodies of other countries fall within the scope of “foreign or international tribunal” under 28 U.S.C Section 1782? – The Court ruled yes, as any tribunal imbued with governmental authority by a foreign nation would be included within the purview of “foreign tribunal” in Section 1782.
• Do international dispute resolution tribunals created under international treaties between governments fall under the purview of “foreign or international tribunals”? – The Court also found such tribunals to be included within the definition of “international tribunals” under Section 1782, provided that such tribunals are conferred with governmental authority by multiple foreign nations through an international treaty or a similar instrument, and that these nations intended the conferral of said governmental authority.
• What is the standard to establish “governmental authority” for an international dispute resolution tribunal to be considered to fall within the ambit of 28 U.S.C Section 1782? – The Court did not lay down a strict standard of what it deems necessary to establish “governmental authority.” It did, however, indicate that an inquiry into the features of the tribunal and other evidence taken together must establish the intent of the relevant nations to imbue the tribunal in question with governmental authority.

To sum up the analysis of the Court’s decision, the question of whether US-style discovery processes will be available for parties before a foreign or international tribunal can be answered in the context of three situational possibilities as follows –

• Discovery under Section 1782 will be unavailable in most private international arbitrations as well as most investor-state arbitrations unless the investor and the State are pursuing the arbitration before a “foreign or international tribunal” which has been conferred with governmental authority by that State or multiple States through a treaty or a similar instrument.
• Consequently, discovery procedures under Section 1782 may be available in those international arbitral proceedings which are taking place before a tribunal that is clearly imbued with governmental authority, either by a single nation or multiple nations through an international treaty or similar instrument.
• Additionally, discovery under Section 1782 may also be available for use in arbitration related litigation in foreign courts, such as proceedings to recognize and enforce arbitral awards or proceedings to annual an arbitral award/‘Foreign courts’ are naturally deemed to be creations of foreign States and are indeed vested with the governmental authority of those states.

******

[1] ZF Automotive US, Inc. v. Luxshare, Ltd., 596 U.S. ___ (2022)

[2] https://www.finnegan.com/en/insights/articles/the-history-and-purpose-of-section-1782-will-courts-permit-discovery-into-documents-located-abroad.html

[3] See Hans Smit, Assistance Rendered By the United States in Proceedings Before International Tribunals, 62 Colum. L. Rev. 1264, 1264–66 (1962); See also In re NBC, No. M-77, 1998 U.S. Dist. LEXIS 385, at *12–13 (S.D.N.Y. Jan. 16, 1998) (“NBC (SDNY)”) (Section 1782 was the product of two separate “strands” of legislation).

[4] ZF Automotive US, Inc. v. Luxshare, Ltd., 596 U.S. ___ (2022)

[5] https://www.debevoise.com/insights/publications/2022/06/us-supreme-court-narrows-availability