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U.S. Supreme Court Rules Section 1782 Fact Discovery Not Available for Private Overseas Arbitration

更新日:6月15日

Although this long-awaited decision substantially clarifies the analysis of Section 1782 and its applicability to overseas arbitration between private parties under the rules of private organizations, the applicability of Section 1782 to treaty arbitration is not so clear. Further case-by-case development of the principles provided in the decision will be left to the lower courts as they rule on specific treaty provisions authorizing international arbitration.

On June 13, 2022, a unanimous U.S. Supreme Court issued a long-awaited decision in the consolidated appeals of two cases, resolving the question of whether 28 U.S.C. § 1782 authorizes U.S. district courts to order the production of evidence and testimony in support of overseas arbitration. In both cases, and for slightly different reasons, the Court ruled that the discovery procedures of Section 1782 were not available to participants in the overseas arbitrations.


In the case, ZF Automotive US, Inc., et al. v. Luxshare, Ltd., No. 21-401 (June 13, 2022), the Supreme Court construed the language of Section 1782(a), which provides:


The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.


28 U.S.C. § 1782 (emphasis added).


As the emphasized text indicates, the statute authorizes a U.S. district court to order the production of evidence and testimony “for use in a foreign or international tribunal.” The Court therefore focused its analysis on whether an arbitration conducted outside the United States qualifies as “a foreign or international tribunal.”


The Court acknowledged that the word “tribunal,” defined broadly, can mean simply an “adjudicative body” which would encompass private arbitration conducted by agreement of the interested parties. The Court recognized, however, that extending the broad discovery afforded by Section 1782 to private arbitration conducted outside the United States as a “foreign tribunal” would create tension and misalignment with domestic arbitration conducted in accordance with the Federal Arbitration Act, which significantly constrains the scope of discovery.


The Court therefore questioned whether an arbitration’s location outside the United Sates (“a foreign tribunal”) or its involvement of parties with different nationalities (“an international tribunal”) are factors that have any bearing at all when considering Congress’s intended scope of Section 1782.


In reviewing the statute’s history, the Court noted that an early version of Section 1782 covered “‘any judicial proceeding’ in ‘any court in a foreign country.’” Id. at 6 (quoting 28 U.S.C. § 1782 (1958 ed.)). The statute was later broadened in 1964 to cover proceedings in a “foreign or international tribunal.” Id. The Supreme Court had previously observed that the expanded language “created ‘the possibility of U.S. judicial assistance in connection with administrative and quasi-judicial proceedings abroad.’” Id. (quoting Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 258 (2004)). That “quasi-judicial proceeding abroad” language animated much of the prior litigation over whether Section 1782 applies to overseas arbitration.


In this recent case, the Court finally clarified that “a foreign or international tribunal” means a governmental or intergovernmental adjudicative body, thereby excluding private arbitration from the scope of Section 1782. The Court reasoned that “‘[f]oreign tribunal’ more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation.” Id. at 7. Likewise, “[a] tribunal is ‘international’ when it involves or is of two or more nations, meaning that those nations have imbued the tribunal with official power to adjudicate disputes.” Id. at 9.


In the Court’s view, this understanding of “foreign tribunal” and “international tribunal” “complement one another; the former is a tribunal imbued with governmental authority by one nation, and the latter is a tribunal imbued with governmental authority by multiple nations.” Id. Moreover, this interpretation of Section 1782 comports with Congress’s apparent intent to promote comity between the United States and other nations in resolving cross-border disputes. For example, the Commission on International Rules of Judicial Procedures which drafted the modern version of Section 1782 had been charged by Congress to improve “assistance and cooperation between the United States and foreign countries” and “the rendering of assistance to foreign courts and quasi-judicial agencies.” Id. at 10.


Having thus construed Section 1782, the Court applied its analysis to the two cases in the consolidated appeal. The first case involved a dispute over a sales contract between Hong Kong-based Luxshare, Ltd. and ZF Automotive US, Inc., a manufacturer of automotive parts located in Michigan. The sales contract specified arbitration in Germany under the Arbitration Rules of the German Institution of Arbitration (“DIS”), a private organization. Luxshare filed an application under Section 1782 in the U.S. District Court for the Eastern District of Michigan, seeking discovery from ZF. The district court denied ZF’s motion to quash the discovery, and the U.S. Court of Appeals for the Sixth Circuit denied ZF’s request for a stay of discovery. The Supreme Court ultimately stayed the action and granted certiorari. See generally id. at 2-3.


The Court viewed the Luxshare/ZF matter as “straightforward” because the dispute involved private parties participating in an arbitration administered by a private organization, DIS. See id. at 11-12. Luxshare nonetheless had argued that the Court should view DIS as a governmental body because German law regulates certain aspects of private arbitration, and German courts enforce arbitration awards. Id. The Court dispelled Luxshare’s argument, explaining that “private entities do not become governmental because laws govern them and courts enforce their contracts—that would erase any distinction between private and governmental adjudicative bodies.” Id. at 12.


The second case was not so straightforward. That case involved a dispute between the country of Lithuania and a Russian investor who had the misfortune of investing in a failed Lithuanian bank, AB bankas SNORAS (Snoras). See generally id. at 3-5. Lithuania nationalized the bank after its failure and appointed an officer from the consulting firm AlixPartners, LLP to act as temporary administrator. Id. The Russian investor claimed that Lithuania illegally expropriated funds from Snoras and initiated arbitration against Lithuania under the bilateral investment treaty between Lithuania and Russia. Id. The Russian investor filed an application under Section 1782 in the U.S. District Court for the Southern District of New York, seeking discovery from AlixPartners and its appointed officer. Id. The district court granted the discovery over the objection of AlixPartners, and the Second Circuit affirmed. Id. As with the prior case, the Supreme Court stayed the matter, granted certiorari, and consolidated the cases for appeal. Id.


On appeal before the Supreme Court, the Russian investor had argued that the presence of Lithuania as a party to an arbitration conducted under an international treaty instead of a private contract meant that the arbitration panel was acting in an intergovernmental role. See id. at 12. According to the Court, neither the treaty nor the presence of Lithuania as a party were necessarily dispositive. What mattered was the substance of the treaty and whether it “confer[red] governmental authority on [the arbitration] panel formed pursuant to the treaty?” Id. at 13.


The Court noted that the treaty allows an investor to choose one of four alternative means of dispute resolution, including litigation in a court of the contracting state where the investment was made or arbitration under the rules of one of three possible international arbitration organizations. The Court viewed the treaty as offering two broad categories of dispute resolution: (1) litigation “before a pre-existing governmental body” or (2) arbitration before a panel to be formed under the rules and procedures of a private organization. Id. at 13-14.


Parties electing arbitration under the treaty, therefore, were free to choose panel members with no formal affiliation with the contracting states and who are compensated, not by a government, but by the parties to the dispute. Id. In the Court’s view, the arbitration panel employed in the Snoras matter was “materially indistinguishable in form and function from the DIS panel” in the Luxshare matter. Id. at 14 (citations omitted). In both matters, the arbitration panels derived their authority, not from government, but instead from the parties’ consent. Id. The Court therefore ruled that the discovery provided by Section 1782 was not available to the Russian investor, because the arbitration panel was private rather than governmental.


In conclusion, the Court went to considerable lengths to emphasize that “[n]one of this forecloses the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority” and that “governmental and intergovernmental bodies may take many forms, and we do not attempt to prescribe how they should be structured.” Id. at 15. According to the Court, “[t]he relevant question is whether the nations intended that the ad hoc panel exercise governmental authority.” Id. In sum, “the inquiry is whether [the evidence establishes] the intent of the relevant nations to imbue the body in question with governmental authority.” Id. at 16.


Although this long-awaited decision substantially clarifies the analysis of Section 1782 and its applicability to overseas arbitration between private parties under the rules of private organizations, the applicability of Section 1782 to treaty arbitration is not so clear. Further case-by-case development of the principles provided in the decision will be left to the lower courts as they rule on specific treaty provisions authorizing international arbitration.


Here, Lithuania and the Russian investor were free to engage private arbitrators to resolve their dispute under the rules of a private organization, which simplified the Court’s analysis. As the Court foreshadowed, however, international dispute resolution treaties come in many flavors, and going forward, U.S. courts will have to contend with the nuances of those differing treaties when applying the Supreme Court’s ruling in this case.

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