Supreme Court Rules that Discovery is Not Available in Aid of Private Foreign Arbitration: ZF Automotive US, Inc. v. Luxshare, Ltd., Decided June 13, 2022
The U.S. Supreme Court resolved a dispute on Monday, June 13, 2022, that had been simmering in the lower courts for some time: whether 28 U.S.C. § 1782(a) authorizes district courts to order discovery in favor of private foreign arbitration proceedings. In ZF Automotive US, Inc. v. Luxshare, Ltd., Case No. 21-401, the Court unanimously ruled that § 1782(a) only permits a district court to order the production of evidence for use in proceedings before a governmental or intergovernmental adjudicative body. The Court held that the statute does not grant district courts the authority to order discovery for use in private arbitration proceedings. As a result, parties to private foreign arbitration proceedings may no longer invoke § 1782 to obtain testimony and evidence in U.S. district courts.
Section 1782 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.
The issue presented in ZF Automotive was whether a private arbitration panel qualified as a “foreign or international tribunal.” The appeal arose from two consolidated cases.
In the first case, ZF Automotive sold several of its business units to Luxshare. After closing, Luxshare allegedly discovered concealed information that resulted in it vastly overpaying for the business. The contract of sale required the parties to resolve their dispute in private arbitration in Germany. Prior to commencing arbitration, Luxshare filed an ex parte application under § 1782 in the Eastern District of Michigan, seeking discovery in aid of the foreign arbitration. ZF Automotive moved to quash the subpoenas, arguing that the statute only permitted the court to order discovery in aid of foreign court proceedings, not private arbitration. The district court allowed the discovery, and the Sixth Circuit denied ZF’s motion for a stay.
The second of the consolidated cases involved a dispute between a Lithuanian bank and a Russian investor fund. The investor initiated proceedings against Lithuania under a treaty between Lithuania and Russia which sought to promote favorable conditions “for investments made by investors of one Contracting Party in the territory of the other Contracting Party.” The treaty offered four specified forums for resolving disputes, one of which was “ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on Internal Trade Law (UNCITRAL).” The investor chose UNCITRAL arbitration. After initiating arbitration, the investor filed a § 1782 application in the Southern District of New York, seeking discovery from a third party auditor in aid of the arbitration. The third party auditor objected, arguing that the ad hoc arbitration panel was not a “foreign or international tribunal” under the statute. The district court rejected that argument and granted the discovery request. The Second Circuit affirmed and allowed discovery on the basis that the ad hoc tribunal was “foreign or international” rather than private.
The U.S. Supreme Court focused its analysis on the phrase “foreign or international tribunal.” It began by recognizing that the word “tribunal,” on its own, is broader than referring only to courts and does not itself exclude private adjudicatory bodies. But, the word “tribunal” does not stand on its own. Attached with “foreign or international,” the Court found that “tribunal” was best understood “as an adjudicative body that exercises governmental authority.” This interpretation, according to the Court, is supported by the statute’s history and the Federal Arbitration Act, which only permits an arbitration panel to request discovery from courts—not parties.
In holding that a “foreign or international tribunal” is one that exercises governmental authority, the Court resolved a longstanding split between the circuit courts. In the past, district courts in the Ninth Circuit have generally permitted parties to invoke § 1782 to obtain discovery from witnesses located or found in the United States to aid cases in private foreign arbitrations. Following the ZF Automotive case, district courts no longer have authority under that statute to order discovery in aid of a private foreign arbitration.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
- Molly HenryShareholder
- Philip LempriereShareholder