2021-2022 SCOTUS Arbitration Wrap-Up

June 16 Scotus Arbitration Cases Wrap-Up

The U.S. Supreme Court yesterday wrapped up its arbitration docket with a decision in Viking River Cruises v. Moriana, No. 20–1573.

That was the last of five arbitration matters scheduled, argued, and decided in the 2021-2022 Court term. It’s an unprecedented amount of cases in the area closely watched by the CPR and ADR communities, even in a term which, to be sure, has been characterized by controversial cases involving emergency orders on Covid-19 vaccinations, and forthcoming decisions on immigration, gun rights, and abortion.

We were joined today by members of our recurring, occasional YouTube panel to talk about Viking River Cruises and the other cases in an attempt to sum up the substantial and substantive arbitration instruction that has emerged from the nation’s top Court over the past several weeks in the five opinions.

University of North Texas Dallas College of Law Professor of Practice and Assistant Director of Experiential Education Angela Downes and veteran Texas attorney-arbitrator Richard Faulkner provide the insight.

With six SCOTUS cases as subjects, there’s a lot of quick references to the cases.  You can find the background case histories in previews, argument analysis, and dissections of the opinions on CPR Speaks here.

And here’s a quick guide to our CPR Speaks decision analysis for each case (containing links to our historical coverage), in the chronological order of Supreme Court decisions:

  • Badgerow v. Walters, No. 20-1143 (March 31), on the limits of federal court jurisdiction under the Federal Arbitration Act. (on CPR Speaks here).
  • Morgan v. Sundance Inc., No. 21-328 (May 23), holding that a party resisting arbitration seeking to show its adversary waived its arbitration right need not prove that the adversary prejudiced the party by its actions (here).
  • Southwest Airlines Co. v. Saxon, No. 21-309 (May 30), holding an airport ramp supervisor qualifies for the Federal Arbitration Act Section 1 exemption from arbitration (here).
  • ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401 (June 13) consolidated with AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, No. 21-518 (June 13), holding that 28 U.S.C. § 1728 cannot be used in aiding discovery efforts for overseas arbitration tribunals (here and here).
  • Viking River Cruises Inc. v. Moriana, No. 20–1573 (June 15), holding that the Federal Arbitration Act mostly preempts California’s Private Attorneys General Act of 2004 in that employees who have agreed to mandatory arbitration must arbitrate their individual PAGA claims (here).

The above video can be found directly on YouTube at https://youtu.be/KFV8xIvA_o8.

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Will the 11th Circuit Maintain N.Y. Convention Deference for Arbitration Award Enforcement?

By Xin Judy Wang

A three-judge Eleventh U.S. Circuit Court of Appeals panel has made the unusual move of urging the full circuit to convene en banc to overturn its precedents addressing vacatur of arbitral awards.

Part of a minority among circuits, an Eleventh Circuit panel on May 27 limited the basis for vacating an international arbitral award only to the seven grounds enumerated in Art. V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention. Deference to the New York Convention makes Alabama, Florida, and Georgia—the states covered by the Eleventh Circuit–attractive forums for international arbitration.

But this deferential position may soon change.

In Corporacion AIC, S.A. v. Hidroelectrica Santa Rita S.A., the Eleventh Circuit panel reluctantly affirmed the district court’s determination that it cannot vacate an international arbitral award on the “exceeding powers” ground. No. 20-13039 (11th Cir. May. 27, 2022) (available at https://bit.ly/3zuLRDi).

Stating it was “powerless to change the course as a three-judge panel,” the opinion, by Senior Circuit Judge Gerald Bard Tjoflat, encouraged the appeals court to convene en banc to overturn its precedents, “and hold that under a correct understanding of Supreme Court precedent the exceeding powers ground is a valid basis for vacatur under both the New York Convention and the [Federal Arbitration Act].”

* * *

The parties to the dispute are two Guatemalan companies, Corporacion AIC, or AICSA, and Hidrolectrica Santa Rita, referred to as HSR below. The parties signed a March 2012 contract to construct a hydroelectric power plant in Guatemala, but had to discontinue the project when HSR issued a force majeure notice in response to fierce opposition by the local community—excusing performance and canceling the contract.

HSR then sought reimbursement for advance payments and commenced arbitration proceedings in the International Court of Arbitration. The arbitration, held in Miami, resulted in an order that AICSA return about $7 million and about €435,000 to HSR. AICSA was allowed to keep its earnings pursuant to the contract, about $2.5 million and about €700,000.

Dissatisfied with the decision, AICSA filed suit in Florida’s Southern U.S. District Court, petitioning to vacate the award because “the arbitration panel had exceeded its powers.”

The “exceeding powers” ground is not enumerated in the New York Convention. Instead, it comes from 9 U.S.C. § 10(a)(4)–the Chapter 1 Federal Arbitration Act provision on overturning awards. The district court denied the petition, citing Eleventh Circuit precedents that the New York Convention–codified by FAA Chapter 2–exclusively governs vacatur of an international arbitral award. 

* * *

The Eleventh Circuit first adopted its deferential position in the 1998 case Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998) (available at https://bit.ly/3O8XAf6). In Industrial Risk, the appellate court explained that the New York Convention’s defenses against enforcing an international arbitral award are “exclusive.” On similar facts of foreign parties arbitrating in Florida, the circuit declined to consider a ground of vacatur not explicitly mentioned in the New York Convention.

The circuit last confirmed this deference in  Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte Int’l GmbH., 921 F.3d 1291 (11th Cir. 2019) (available at https://bit.ly/3HfcoWY). Also addressing an arbitration between two foreign corporations in Florida, the panel confirmed the binding force of Industrial Risk in the circuit.

In the opinion, Senior Circuit Judge Tjoflat critiqued Industrial Risk, noting that the decision did not consider whether a non-enumerated vacatur ground from domestic law may be used under New York Convention Art. V(1)(e), which states,

(1) Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

. . . .

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. [Emphasis added in this post.]

The panel reads V(1)(e) as allowing national courts to vacate an award based on domestic grounds when the forum is either the seat of arbitration or when its law is applied.

* * *

According to the Corporacion AIC panel, this reading of V(1)(e) depends on recognizing the distinction between primary and secondary jurisdiction. A forum has primary jurisdiction when it is the location of the arbitral award or when its law is used to decide the arbitration dispute.

A forum has secondary jurisdiction when the forum’s court is not the seat of arbitration and thus may only refuse to enforce, rather than annul an award. Therefore, when, as here, the United States is the arbitration seat, a U.S. forum has primary jurisdiction to vacate the award on domestic grounds.

The panel opinion draws support from the Supreme Court case BG Group PLC v. Republic of Argentina, 572 U.S. 25 (2014) (available at https://bit.ly/3OwTopJ)  (Argentina sought to vacate an award on the basis that the arbitrators lacked jurisdiction and thus “exceed their powers” under FAA 10(a)(4)). In BG Group, the Court noted that for a motion to vacate a U.S. award, federal courts should normally interpret a treaty’s intent by applying presumptions supplied by U.S. law. The Corporacion AIC panel reads this comment as a “[nod] to the idea of primary jurisdiction” by conferring a special reviewing power to the arbitration forum.

The panel boosts this distinction by pointing to a country’s heightened interest in the outcome of an award when that country’s laws are being used or when it is the location of arbitration. It goes on to suggest that a state should have a mechanism to ensure an award’s validity when the award is issued in its jurisdiction. Limiting grounds of vacatur strictly to those enumerated in the Convention would constitute “meddling with national procedure for handling domestic awards,” citing a Second Circuit case, Yusuf Ahmed Alghanim & Sons v. Toys “R” Us Inc., 126 F.3d 15, 22 (2d Cir. 1997) (available here).

More specifically, the Corporacion AIC panel reads BG Group to have applied the “exceeding power” ground in its vacatur analysis (the Supreme Court opinion stated that it could not “agree with Argentina that the arbitrators exceeded their powers in concluding they had jurisdiction.”) Though not the key BG Group opinion focus, the Eleventh Circuit panel reads this comment as the Supreme Court’s implicit endorsement of applying vacatur grounds not expressly mentioned in the New York Convention.

This is not the first time the Eleventh Circuit has adopted such a reading of BG Group. In the 2017 case Bamberger Rosenheim Ltd., (Israel) v. OA Dev. Inc., (United States), the circuit cited BG Group and “assumed without deciding” that FAA Chapter 1 applied to international arbitral awards. 862 F.3d 1284, 1287 n.2 (11th Cir. 2017) (available at https://bit.ly/3O950yG).

* * *

Circuit Judge Adalberto Jordan wrote a Corporacion AIC concurrence taking a different path that reached back to the Convention’s 1958 adoption. He agreed with the majority opinion that Industrial Risk and Inversiones were wrongly decided, and the appeals court should apply FAA § 10 grounds to vacate a New York Convention award.

The disagreement lies in his rationale. He applied FAA § 10 not because the vacatur standards are incorporated into the New York Convention through Art. V(1)(e), but rather that § 10 should apply, as domestic law, directly to the vacatur of an international award made in the United States.

The New York Convention draws from two earlier treaties, the 1923 Geneva Protocol on Arbitration Clauses and the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards. The former mandated award enforcement only in the seat of arbitration, and the latter broadened its scope by providing for award recognition and enforcement in countries other than the seat.

The problem with the two Geneva Treaties was “double exequatur,” referring to the Geneva Convention’s requirement that an award can only be recognized and enforced (in countries other than the seat) if it was already “final in the country in which it ha[d] been made.” This created an extra hurdle for international enforcement of arbitral awards. The New York Convention eliminated the double exequatur by no longer requiring the seat’s recognition for enforcement elsewhere.

Circuit Judge Jordan recognized this significant modification but maintained that the New York Convention left intact the binary framework of the Geneva Treaties. There remain different responsibilities and authorities between the arbitral seat and other states. The arbitral seat can vacate an award, but other States may only recognize and enforce an award (which parallels the majority opinion’s definition of primary and secondary jurisdiction). Jordan drew attention to the Convention’s text–Art. V(1) starts with “Recognition and enforcement of the award may be refused.  …” Therefore, Art. V(1)(e) only addresses recognition and enforcement in other states. Jordan’s opinion states that the New York Convention (and its counterpart,  FAA Chapter 2) do not enumerate the grounds on which a court can vacate an international arbitral award.

Accordingly, to “fill the gap” of the New York Convention, vacatur should be governed by domestic law. Jordan cited the 2020 U.S. Supreme Court international arbitration case of GE Energy Power Conversion Fr. SAS Corp. v. Outokumpu Stainless USA, 140 S. Ct. 1637 (available at https://bit.ly/3xKmpHJ) (“the New York Convention was drafted against the backdrop of domestic law” and “the Convention requires courts to rely on domestic law to fill [its gaps]”).

Circuit Judge Jordan also looked to the United Kingdom and Switzerland’s permission to challenge international arbitral awards on native grounds.  He suggested that the FAA’s 9 U.S.C § 208, on the FAA’s application, was drafted to reflect this binary framework. Courts, the concurrence suggests, should apply domestic law for award vacatur for arbitrations held in the United States (§ 208 – “Chapter 1 applies to actions and proceedings … to the extent that chapter is not in conflict with this chapter or the [New York Convention]. . . .”).

* * *

As recognized by Circuit Judge Jordan’s concurrence, the number of international arbitrations has been rising in the Eleventh Circuit. The circuit’s deference to the New York Convention for award enforcement likely plays an important role in its popularity.

It is unusual for a panel to urge a rehearing en banc to overturn circuit precedents, especially when the majority and concurrence provide two different routes for the basis of overturning the precedents. How Corporacion AIC will continue to develop in the circuit or at the U.S. Supreme Court will significantly affect international arbitration in the circuit and beyond.

Attorneys for the parties did not immediately reply to email requests for comment.

* * *

The author, who will be a second-year student at Columbia University Law School in New York this fall, is a 2022 CPR summer intern.

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More on Section 1782: Why the U.S. Supreme Court Says the Law Doesn’t Permit Discovery Requests from International Arbitrations

By Tamia Sutherland & Russ Bleemer

Here is a deeper dive into today’s U.S. Supreme Court consolidated decision in ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401, which was consolidated with and covers AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign StatesNo. 21-518. Does the new decision, which restricts discovery under a law aiding foreign governmental entities in U.S. courts, also limit discovery under the Federal Arbitration Act?

Our post covering the opinion from this morning can be found on CPR Speaks here.

In today’s unanimous 9-0 opinion, available here, the Court held that the use of 28 U.S.C. § 1782 for discovery in international proceedings was limited. “Only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U. S. C. §1782,” wrote Justice Amy Coney Barrett in her first arbitration decision since ascending to the bench in 2020, “and the bodies at issue in these cases do not qualify.”

The statute, as the opinion notes, “permits district courts to order testimony or the production of evidence ‘for use in a proceeding in a foreign or international tribunal.’”

Specifically, Section 1782 states:

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.

Justice Barrett focused in the opinion on the phrase “foreign or international tribunal,” citing Black’s Law Dictionary and the Court’s only previous Sec. 1782 holding, Intel Corp. v. Advanced Micro Devices Inc., 542 U. S. 241  (2004) (available at https://bit.ly/3xKIMO5), which permitted discovery to a foreign tribunal but didn’t decide the arbitration-application issue. She parses the definitions individually of “foreign,” “international,” and “tribunal.”

Citing the U.S. government’s brief, which sought a limited use of the statute that didn’t include arbitration, Barrett writes,

“Tribunal” is a word with potential governmental or sovereign connotations, so “foreign tribunal” more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation. And for a tribunal to belong to a foreign nation, the tribunal must possess sovereign authority conferred by that nation.”

John B. Pinney, counsel to Cincinnati’s Graydon Head & Ritchey–who is counsel of record on an AlixPartners amicus brief urging the Court to accept the case on behalf of CPR, publisher of this blog (details here)–says that the government’s intervention in the case was pivotal. He cites the government brief and, in particular, Assistant Solicitor General Edwin Kneedler’s participation in the March 23 Supreme Court hearing.

“Between the lines,” notes Pinney in an email, “Kneedler’s argument on behalf of the United States did change the momentum of the proponents’ arguments as well as bolstering the opponents’ arguments.  . . . Justice [Stephen G.] Breyer, whose early questions seemed to put him in the proponent’s camp, appeared to move toward the opponents’ position during Kneedler’s argument when he made a comment that the well-heeled users of international arbitration could petition Congress if they wanted authorization for federal court judicial assistance.  In other words: the view that the operative phrase, ‘foreign or international tribunal,’ in Sec. 1782 ought not be expansively interpreted and that, as a result, it should be up to Congress to be clear if it truly wanted federal courts to have jurisdiction to provide discovery assistance for international arbitral tribunals.”

The Supreme Court opinion’s section on the meaning of the statutory wording concludes by excluding private matters, stating,

“[F]oreign 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.

* * *

The opinion then compares 28 U.S.C. 1782 discovery to the Federal Arbitration Act. It notes that limiting the law’s use to “only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” referring to the Commission on International Rules of Judicial Procedure, which studied U.S. judicial assistance to foreign countries, and recommended improvements, including the law.

Barrett discusses the effects of adopting a broader reading, and, rejecting the plea, notes:

[T]he animating purpose of §1782 is comity: Permitting federal courts to assist foreign and international governmental bodies promotes respect for foreign governments and encourages reciprocal assistance. It is difficult to see how enlisting district courts to help private bodies would serve that end. Such a broad reading of §1782 would open district court doors to any interested person seeking assistance for proceedings before any private adjudicative body—a category broad enough to include everything from a commercial arbitration panel to a university’s student disciplinary tribunal. [The opinion cites petitioner ZF Automotive’s brief.]

An extension to private bodies of Section 1782 would create “significant tension with the FAA” because the discovery allowed under Section 1782 is broader, Barrett explains.

But in discussing the contrast, the passage that followed also appears to refine the FAA’s use, and is sure to raise questions about the limits among veteran practitioners:

Among other differences, the FAA permits only the arbitration panel to request discovery, see 9 U. S. C. §7, while district courts can entertain §1782 requests from foreign or international tribunals or any “interested person,” 28 U. S. C. §1782(a). In addition, prearbitration discovery is off the table under the FAA but broadly available under §1782. See Intel, 542 U. S., at 259 (holding that discovery is available for use in proceedings “within reasonable contemplation”).

“This wouldn’t be the first time the Court made arbitration law via dicta,” notes Fordham University School of Law adjunct George H. Friedman, a former longtime senior vice president of dispute resolution at FINRA in an email, adding, “Manifest disregard” [which had been used in addition to FAA Sec. 10 to overturn awards] was announced via dicta in Wilko v. Swan back in 1953.” For more on the Court’s FAA gloss, see George H. Friedman, “SCOTUS Decides ZF Automotive: Yet Another Unanimous Decision, This One Holding that Section 1782 Discovery in Foreign Arbitrations Applies Only to Governmental Tribunals,” Securities Arbitration Alert (June 13) (available here).

Barrett concludes the Court’s Section 1782 definition by noting,

§1782 requires a “foreign or international tribunal” to be governmental or intergovernmental. Thus, a “foreign tribunal” is one that exercises governmental authority conferred by a single nation, and an “international tribunal” is one that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within §1782.

* * *

In looking at the facts in the two arbitration cases on appeal to the Supreme Court, the opinion analyzed whether the “adjudicative bodies” were “governmental or intergovernmental,” concluding that the matters were private arbitration, and not subject to Section 1782 discovery.

It was an easy call on the ZF Automotive case:

[P]rivate 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. [Respondent] Luxshare’s implausibly broad definition of a governmental adjudicative body is nothing but an attempted end run around §1782’s limit.  

The opinion quickly notes, however, that the AlixPartners case involving the Lithuanian government is harder. It features a government on one side of a case where the arbitration option is contained in an international treaty rather than a private contract, making the case appear to be an intergovernmental dispute under Section 1782.

“Yet neither Lithuania’s presence nor the treaty’s existence is dispositive, because Russia and Lithuania are free to structure investor-state dispute resolution as they see fit,” the opinion states.

Instead, wrote Barrett, “What matters is the substance of their agreement: Did these two nations intend to confer governmental authority on an ad hoc panel formed pursuant to the treaty?”

The Supreme Court analyzed the parties’ contractual arbitration options, which included using court-related processes, as well as Arbitration Institute of the Stockholm Chamber of Commerce and the  International Chamber of Commerce’s Court of Arbitration.

But the parties chose “an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).”

That, wrote Justice Barrett, “by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes. And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority. For instance, the treaty does not itself create the panel; instead, it simply references the set of rules that govern the panel’s formation and procedure if an investor chooses that forum. In addition, the ad hoc panel “functions independently” of and is not affiliated with either Lithuania or Russia.”

The opinion adds, “So inclusion in the treaty does not, as the [respondent] Fund suggests, automatically render ad hoc arbitration governmental.” Still, after its focus on the ad hoc nature of the investor-state bilateral investment treaty dispute resolution process, the opinion notes that in the future, sovereign parties may be able to “imbue an ad hoc arbitration with official authority.”

In reversing the lower court decisions in both consolidated cases, Justice Barrett lays out the new rule of law on overseas discovery under 28 U.S. 1782 succinctly in her conclusion:

In sum, only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” under §1782. Such bodies are those that exercise governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.

* * *

Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.

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Supreme Court Bars Discovery Assistance for Private Overseas Arbitration Panels Under U.S. Law

By Tamia Sutherland & Russ Bleemer

The U.S. Supreme Court this morning restricted the use of 28 U.S.C. § 1782 for discovery in international proceedings to “[o]nly a governmental or intergovernmental adjudicative” body, but not cross-border arbitration matters.

The unanimous 9-0 decision in consolidated cases by Justice Amy Coney Barrett—her first arbitration opinion as a member of the nation’s high Court—clarifies the use of the 1964 law, which recently split the federal circuit courts over its reach for arbitration parties.

“Interpreting §1782 to reach only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” wrote Barrett–referring to the 1960’s Commission on International Rules of Judicial Procedure, to improve U.S. laws reaching overseas–in today’s decision in ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401, which was consolidated with and covers AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign StatesNo. 21-518.

The opinion can be found here.

The issue was whether 28 U.S.C. § 1782 can be invoked in international arbitrations to obtain U.S.-style discovery for evidence. This inquiry looked at whether the statutory language—“foreign or international tribunal”—extends to arbitration panels.

The opinion had little problem removing arbitration discovery requests from a private arbitration tribunal in ZF Automotive, where a federal district court permitted discovery under the statute in the U.S. for parties in the court’s jurisdiction. The Sixth U.S. Circuit Court of Appeals denied a ZF Automotive request to stay the order.

Today’s opinion, however, states that the legislative history behind the statute, as well as a comparison to the domestic-focused Federal Arbitration Act, which allows far narrower discovery than Section 1782, puts the law’s focus on discovery for governmental bodies, not private arbitration tribunals.

The Court had more difficulty with the AlixPartners case, which involved the government of Lithuania. But the Barrett opinion says that the parties’ actions under a bilateral investment treaty are the key here–the parties were acting more like private parties than governmental entities in setting up an ad hoc ADR process. 

“An ad hoc arbitration panel, by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes,” wrote Barrett, “And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority.”

AlixPartners focused on investor-state arbitration, in which one of the parties is the Lithuanian government. In AlixPartners, the respondent is a Russian entity representing investors pursuing claims before an ad hoc UNCITRAL-rules arbitral tribunal against Lithuania for the investors’ financial losses resulting from the insolvency of a Lithuanian bank. The Second U.S. Circuit Court of Appeals permitted discovery, finding that the ad hoc panel qualified under Section 1782 as a “foreign or international” tribunal rather than a private arbitration matter.

The Barrett opinion notes that the inclusion of arbitration in the BIT did not automatically make the process a governmental proceeding meriting the use of Section 1782. “Instead,” wrote Barrett, “it reflects the countries’ choice to offer investors the potentially appealing option of bringing their disputes to a private arbitration panel that operates like commercial arbitration panels do.”

[The publisher of this blog, CPR, urged the Court in an amicus brief to hear the AlixPartners case last year, without taking a merits position on the case. Details are available here.]

In ZF Automotive, a private commercial contract with ZF Automotive’s German parent required that disputes be arbitrated before the German Arbitration Institute, an arbitration provider. The ZF Automotive case, however, was brought in Detroit before the commencement of the Germany private international arbitration. 

The U.S. District Court allowed the requested discovery.  On appeal to the Sixth Circuit, ZF Automotive, in an unusual move, petitioned for certiorari before judgment to bypass waiting for the Sixth Circuit to decide its appeal. The Sixth Circuit, as noted, declined to stay the lower court’s order. Respondent Luxshare had requested and was granted discovery for the arbitration, in which it alleged fraud against ZF Automotive, under Section 1782. The Supreme Court granted certiorari on Dec. 10, and reversed the lower court decision today.

During a two-week, four-argument deep dive into arbitration law and practice in March (see this CPR Speaks link for previews, argument summaries, and reports on the decisions issued so far here), the Supreme Court heard these Sec. 1782 consolidated arguments as well as an oral argument from the U.S. Solicitor General’s office.

Veteran Assistant Solicitor General Edwin Kneedler’s contention that the Court should be cautious in accepting respondents’ arguments because any expansion of the scope of Section 1782’s reach should be addressed by Congress is reflected in the decision-making process, and the U.S. government’s brief is cited by Justice Barrett. Full details on the March 23 ZF Automotive oral arguments are available on this CPR Speaks blog here.

* * *

Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.

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One Declined, One Pending: Scotus Asked to Enforce an Arbitration Award against a Sovereign and an Oil Company

By R. Daniel Knaap

The U.S. Supreme Court earlier this week declined to hear a case where Saudi Arabian landowners sought to enforce an arbitration award against the Saudi Arabian Oil Co., best known as Saudi Aramco.

The long-running matter, rooted in a nearly 90-year oil development land lease agreement, isn’t over. There’s a companion case from the same petitioners before the Court–against Chevron Corp., Saudi Aramco’s predecessor in the oil exploration and production deal–scheduled to be considered at a Supreme Court conference on June 16.

The Saudi Aramco case explores the limits of sovereign immunity in the face of a request to enforce an arbitral award against a government-tied entity. Now, at least in the Fifth Circuit’s view, the matter’s complex back story was sufficient to deny enforcement of the award against the state-owned enterprise in the absence of a 28 U.S.C. §1605 exception to foreign sovereign immunity.

In contrast, the Chevron case involves the issue of whether its predecessor’s arbitration agreement applies to the dispute.

The petitioners instituted two different enforcement proceedings regarding an $18 billion International Arbitration Center award against Saudi Aramco (Al-Qarqani v. Arab AMOCO, 2020 WL 6748031 (S.D. Tex., Nov. 17, 2020) and Chevron (Al-Qarqani v. Chevron Corp., 2019 WL 4729467 (N.D. Cal., Sept. 24, 2019).

Both the California and Texas U.S. District Courts refused to confirm the award. The Ninth Circuit affirmed the California district court, holding that the enforcement petition should be denied on the merits and not dismissed for failure to state a claim. Al-Qarqani v. Chevron Corp., 8 F.4th 1018 (9th Cir. 2021) (available at https://bit.ly/3zhYVvM). It further denied the petitions for rehearing and rehearing en banc, Al-Qarqani v. Chevron Corp., 2021 U.S. App. LEXIS 33976 (9th Cir. Cal., Nov. 16, 2021).

The case continues. A petition for certiorari in the nation’s top Court for Waleed Khalid Abu Al-Waleed Al Hood Al-Qarqani, et al. v. Chevron Corp., No. 21-1153, is pending and distributed for the June 16 conference.

In the Saudi Aramco case, the Fifth Circuit vacated the Southern District of Texas’s judgment, remanding with instructions that the case should be dismissed for lack of jurisdiction since Saudi Aramco qualified as a foreign state immune from suit under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §1603. Al-Waleed v. Saudi Arabian Oil Co., 19 F.4th 794 (5th Cir. 2021) (available at https://bit.ly/3zgvSZC).

The petition for certiorari in that case, Waleed Khalid Abu Al-Waleed Al Hood Al Qarqani, et al. v. Saudi Arabian Oil Co., No. 21-1335, was denied on May 31; Tuesday’s order declining cert is available here.

* * *

According to the Supreme Court filings and lower court decisions, the case concerns a dispute between Saudi landowners and Saudi Aramco, which is Chevron’s successor in interest and fully owned by the Kingdom of Saudi Arabia. In 1933, an agreement was concluded between Chevron’s predecessor, Standard Oil Co. of California, and Saudi Arabia, which provided for rent payments to private landowners of oil-rich land, who were not a party to the agreement.

A deed of concession was concluded in 1949, which transferred the property from the landowners to Arabian American Oil Co., now Saudi Aramco. The petitioners, heirs of the landowners that were a party to the 1949 deed, claim that the land was leased, not sold, and that the 1933 agreement arbitration provision was imported into the 1949 deed. The petitioners initially sought back rent in Saudi Arabian courts. That proceeding took place in 2011, and a “Saudi Legal Committee” found that the 1949 deed was a sale, not a lease. 19 F.4th 794, 797.

The petitioners commenced arbitration proceedings at the International Arbitration Center in Egypt against Aramco and Chevron entities. Aramco rejected the arbitration and did not participate in the proceedings. The Chevron entities objected but nominated an arbitrator. Initially, the tribunal held that it lacked jurisdiction, but the proceedings were reopened by a panel with different members, resulting in an opinion in favor of the petitioners, awarding them $18 billion. Id. In the aftermath of the arbitration, an Egyptian court convicted two IAC administrators and three arbitrators of fraud, forgery, and other crimes relating to the second proceeding. Id.

* * *

The Saudi Aramco petition presented the following questions: whether a foreign sovereign or instrumentality of a state that (1) is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards–the New York Convention–may assert the FSIA as a defense to enforcement of a foreign arbitral award, (2) accepts and accedes the United Nations Conventions on Jurisdictional Immunities amounts to an express waiver of sovereign immunity under the New York Convention, and (3) fails to timely file a cross appeal from a U.S. district court order that denied the sovereign’s assertion of the FSIA as a defense amounts to waiver and bars a subsequent request for a jurisdictional dismissal on appeal that is based on the merits.

Since certiorari was denied, the Fifth Circuit’s judgment stands. It held that Saudi Aramco is a foreign state under the FSIA since it was “a distinct legal entity incorporated under Saudi law, a majority of whose shares are owned by the Kingdom of Saudi Arabia and whose principal place of business is in Saudi Arabia” and thus “presumptively immune from suit in the courts of the United States.” 19 F.4th 794, 800. This immunity was not waived by the exceptions set out in FSIA’s 28 U.S.C. §1605(a). It was not waived under §1605(a)(1) because “the dispute underlying the arbitral award at issue … is clearly outside its scope,” since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement. Id.

The immunity was also not waived under §1605(a)(2) by Saudi Aramco conducting business in the United States since the arbitration took place in Egypt and “did not cause a ‘direct effect’ in the United States.” Id., at 801.

The expropriation exception provided in §1605(a)(3) also does not apply because the action is to enforce an arbitral award, “not litigation of a property dispute involving international law.” Id.

Finally, immunity also was not waived under §1605(a)(6)’s arbitration agreement exception since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement, and the 1949 deed did not mention arbitration nor did it refer to the 1933 agreement’s arbitration clause. Therefore, the Fifth Circuit concluded, the action should be dismissed for lack of jurisdiction instead of denying the petition for enforcement. Id. at 801-2.

The cert denial allowing the Fifth Circuit decision to stand in turn appears to provide some answers to the petitioner’s questions presented.

First, a foreign sovereign or instrumentality of a state that is a signatory to the New York Convention may assert the FSIA as a defense to enforcement of a foreign arbitral award. Second, a foreign sovereign or instrumentality of a state that accepts and accedes the United Nations Convention on Jurisdictional Immunities does not amount to an express waiver of sovereign immunity under the New York Convention. The third question, however, was not explicitly addressed since the appeal was found to be timely.

* * *

The author, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.

[END]

Supreme Court Hears Arguments on Whether Section 1782 Allows Discovery for Use Before International Arbitration Tribunals

By John Pinney & Russ Bleemer

The U.S. Supreme Court today heard almost two hours of argument on whether 28 U.S.C. § 1782 allows parties to seek a federal district court order for discovery of evidence for use before international arbitral tribunals.  

In consolidated cases this morning, the Court not only heard arguments from the parties’ counsel but also conducted a potentially pivotal discussion with an attorney from the U.S. Solicitor General’s office.  The government sided with the petitioners and argued against Section 1782’s application for both private international and investor-state arbitrations.

A key issue that emerged during today’s argument was whether the phrase “foreign or international tribunal” should be the focus or whether the single word “tribunal” alone should form the basis of the court’s consideration of whether Section 1782 allows U.S. federal district courts to provide judicial assistance to international arbitral tribunals. 

The Court itself was hesitant about arbitration matters’ inclusion in the law, which is titled “Assistance to foreign and international tribunals and to litigants before such tribunals.” There are “too many problems extending this,” said Justice Stephen G. Breyer to respondent counsel urging foreign arbitral tribunals’ access to the law, asking whether the decision should simply be, “[G]o to Congress [and] get it worked out.”

Soon after, Justice Neil Gorsuch said that including arbitration tribunals “runs very counter to our intuitions that arbitration which is that it is supposed to be quick. . . . And [Sec.] 1782 is a very liberal grant of discovery.”

The cases were differentiated by the types of arbitration involved.  ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, is a private arbitration, and AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign States, No. 21-518, is investor-state arbitration, involving the government of Lithuania.

The Court granted certiorari for the two cases argued today in December, shortly after another case addressing the same issue argued today was dismissed in late September.  That case, Servotronics, Inc. v. Rolls-Royce, PLC, No. 20-794, was voluntarily dismissed on the eve of argument that had been set for Oct. 5, during the first week of the Court’s 2021-2022 term. 

[CPR Speaks blog publisher CPR filed an amicus brief in Servotronics and today’s AlixPartners urging the Court to take the cases because of the significance of their issues to international arbitration, but not in support of either side. These briefs were written principally by co-author John Pinney. For details, see John Pinney, “International Arbitration Is Back at the Supreme Court with Today’s Cert Grant on Two Section 1782 Cases,” CPR Speaks (Dec. 10) (available here).]

The first of the two consolidated cases argued today was ZF Automotive, which arises from a private commercial contract with ZF Automotive’s German parent that requires any disputes to be arbitrated before the German Arbitration Institute.  The ZF Automotive case was brought in Detroit prior to commencement of any private international arbitration in Germany.  The district court allowed the requested discovery.  On appeal to the Sixth Circuit, ZF Automotive, in a most unusual move, petitioned for certiorari before judgment to bypass waiting for the Sixth Circuit to decide its appeal. The Supreme Court granted certiorari on Dec. 10.

The second case, AlixPartners, involves an investor-state arbitration arising from a bilateral investment treaty between Russia and Lithuania.  Interestingly, the AlixPartners case is an appeal from the Second Circuit, which in its decision distinguished NBC (see details below), as well as the Second Circuit’s more recent In re Guo, 965 F.3d 96 (2d Cir. 2000), to allow Section 1782 discovery for investor-state cases.

By accepting both a private international arbitration case (ZF Automotive) and an investor-state arbitration case (AlixPartners), the Supreme Court is poised to decide definitively whether any non-governmentally created tribunal can be a “foreign or international tribunal” within the meaning of Section 1782. That was the key focus in today’s arguments.

The cases have attracted 12 amicus briefs – five in support of the petitioners opposing Section 1782 discovery, four in favor of Section 1782 discovery, and three in support of neither side. 

The most significant amici is the United States, which opposes Section 1782 discovery in both private and investor-state arbitrations, arguing that the term “tribunal” does not include international arbitral tribunals, whether they be created either for private international arbitrations or under bilateral or multi-national investment treaties.  The Solicitor General requested and was granted the right to argue orally for the United States today in support of petitioners.

Today’s Arguments

As noted above, a key issue that emerged early in today’s arguments was whether the Section 1782 phrase “foreign or international tribunal” should be the focus or whether the single word “tribunal” alone should form the basis of the court’s consideration of whether the law allows U.S. federal district courts to provide judicial assistance to international arbitral tribunals.   

The 58-year-old statute states, “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 petitioners opposing Section 1782 discovery–Roman Martinez, deputy office managing partner in the Washington, D.C. office of Latham & Watkins on behalf of ZF Automotive, and Joseph T. Baio, senior counsel at New York’s Willkie Farr & Gallagher, for AlixPartners–argued that the entire phrase, “foreign or international tribunal,” must be considered, and that the phrase has never been used with respect to an arbitral tribunal.

The respondents, on the other hand, focused on the word “tribunal” and argued that it has frequently been used with respect to arbitral tribunals, both contemporaneously in 1964 when the statute was enacted and in current usage. The respondent attorneys arguing on behalf of, respectively, Luxshare and the Fund for Protection of Investor Rights in Foreign State, were Andrew Rhys Davies, a New York partner at Allen & Overy, and Alexander A. Yanos, a New York and Washington partner in Alston & Bird.

Veteran Assistant Solicitor General Edwin Kneedler’s argument, which split the four party appearances, appeared to be given weight, especially in relation to how allowing discovery under Section 1782 might affect the United States’ relations with foreign governments.  His argument contended that there is no meaningful distinction between private international arbitral tribunals and arbitral tribunals established under investment treaties, mainly because neither are “governmental.” 

If you have a U.S. court engaged in discovery, said Kneedler, “it creates the potential for . . . controversy and . . . for having the United States involved . . . in something that is really none of its business.”

The takeaway from Kneedler’s arguments was that the Court should be cautious in accepting respondents’ arguments because any expansion of the scope of Section 1782’s reach should be addressed by Congress.  Congress “had specifically in mind formality,” he concluded.

Kneedler’s point resonated with both Justices Gorsuch and Breyer in the argument that immediately followed by Andrew Rhys Davies, arguing for Luxshare to allow discovery under Sec. 1782 for the company’s arbitration in Germany.  Davies had a difficult time answering Gorsuch’s repeated inquiries on why a definitive Sec. 1782 extension shouldn’t be left to Congress.  Davies ultimately countered that there was no need because the full statute answers the application question by putting it in the U.S. District Court’s hands.

Breyer shrugged the answer off, and said there may be too many problems extending the statute, referring to timing of the discovery requests in the arbitration proceeding, including before a tribunal is established.

Davies insisted the statute as it currently exists contemplates those decisions by the federal court, but Gorsuch jumped back into the conversation immediately, noting that such moves runs counter what arbitration is supposed to be, characterizing Sec. 1782, as noted, as “a very liberal grant of discovery.”

Source of the Review

The Court’s review on this issue can be attributed to a 3-to 2-circuit split created when the Sixth U.S. Circuit Court of Appeals decided Abdul Latif Jameel Transp. Co. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019) (“FedEx”).  At the time, the only circuit court decisions on the issue had been decided in 1999 by the Second Circuit (National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999)) and the Fifth Circuit (Republic of Kazakhstan v. Biedermann Int’l., 168 F.3d 880 (5th Cir. 1999)). In both cases, the courts ruled that the phrase “foreign or international tribunal” in Sec. 1782 did not apply with respect to private international arbitral tribunals. 

After the Sixth Circuit decided FedEx, the Fourth Circuit followed the Sixth Circuit in Servotronics Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020), but in a parallel case also brought by Servotronics, the Seventh Circuit instead followed the Second and Fifth Circuits in Servotronics Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2021), holding that Sec. 1782 did not apply with respect to private international arbitral tribunals.

All of these cases came in the wake of the only U.S. Supreme Court facing Section 1782 head on, Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241 (2004). Today’s arguments discussed extending discovery to arbitration tribunals in light of Intel’s inclusion of matters quasi-judicial and administrative bodies.

* * *

For an amicus argument against allowing Sec. 1782 discovery, see analysis by Derek T. Ho & Eliana M. Pfeffer, “Discovery in Aid of Foreign Arbitration Proceedings Unfairly Imposes Tremendous Costs on U.S. Companies,” 40 Alternatives 58 (April 2022) (available at https://bit.ly/3JUXs13).

* * *

Today’s consolidated cases are expected to be decided before the Court’s term ends at the end of June. The transcript and audio of the Sec. 1782 arguments are available on the Supreme Court’s website here. Justice Clarence Thomas has missed this week’s arguments — hospitalized with an infection, according to the Court’s Sunday announcement — but will participate using the briefs and the transcript.

While Court watchers’ eyes this week have been on the confirmation hearings in the U.S. Senate Judiciary Committee, the continuing business of the nation’s top Court is a two-week deep dive into arbitration. The arbitration focus will resume with arguments on Monday morning with Southwest Airlines Co. v. Saxon, No. 21-309. That employment case will consider whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.

Highlights from Morgan v. Sundance Inc.No. 21-328 — an employment arbitration case that was the first of the March arbitration cases, argued earlier this week — can be found on CPR Speaks here. The four-case run will conclude next Wednesday with Viking River Cruises v. MorianaNo. 20-1573, which focuses on the relationship between the FAA and California’s Private Attorneys General Act. For background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

And one 2021-2022 term arbitration case, Badgerow v. Walters, No. 20-1143, awaits decision. Details on the case from the Nov. 2 arguments is available on CPR Speaks here.

* * *

Pinney is counsel to Graydon Head & Ritchey in Cincinnati. On CPR’s behalf, he acted as counsel of record in an amicus brief urging the U.S. Supreme Court to accept the Servotronics and AlixPartners cases, as detailed above. Details on the brief can be found on CPR Speaks here. His AlixPartners brief on CPR’s behalf can be found on the Supreme Court docket page linked at the top or directly at https://bit.ly/3pzZpHj. Bleemer edits Alternatives to the High Cost of Litigation for CPR at altnewsletter.com.  Tamia Sutherland, a second-year law student at the Howard University School of Law, in Washington, D.C., assisted with the preparation of this post.

[END]

The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court

By Bryanna Rainwater

The question of whether a foreign or international tribunal includes arbitration panels for the purposes of providing evidence under a federal court order is back before the U.S. Supreme Court. The case is being briefed and is expected to be added for a conference in which the Court’s members will decide whether to hear the case.

The issue had been set as one of the first tasks for the Court in the opening week of the new 2021-2022 term, earlier this month.

 But in September, the Court dismissed the case at the parties’ request, and the issue about the reach of 28 U.S.C. §1782—”Assistance to foreign and international tribunals and to litigants before such tribunals”–disappeared from the court’s docket.

The latest case, ZF Automotive US, Inc., v. Luxshare, Ltd., Docket No. 21-401, filed Sept. 10, presents the identical question as the dismissed case, with one key difference. The issue presented is:

Whether 28 U.S.C. § 1782(a), which permits litigants to invoke the authority of United States courts to render assistance in gathering evidence for use in “a foreign or international tribunal,” encompasses private commercial arbitral tribunals, as the U.S. Courts of Appeals for the 4th and 6th Circuits have held, or excludes such tribunals, as the U.S. Courts of Appeals for the 2nd, 5th and 7th Circuits have held.

The difference in the new version of the case, according to the petitioners, is that it is a “live controversy” and therefore “free from a potential jurisdictional hurdle” that plagued Servotronics, Inc. v. Rolls-Royce PLC, No. 20-794, the case that was dismissed by the nation’s top Court on Sept. 29.

The hurdle referred to by the ZF Automotive petitioners, a Michigan auto parts manufacturer and a subsidiary of Germany’s ZF Friedrichshafen AG, and two executives associated with the company, is Servotronics’ mootness, because the discovery in the case was no longer needed in the face of the arbitration proceedings and the award. (The cert petition is available here.)

Servotronics had sought to end the Circuit split about the interpretation of the meaning “foreign international tribunal.” The Fourth and Sixth U.S. Circuit Courts of Appeals have held that 28 U.S.C. § 1782 encompasses private commercial arbitrable tribunals, as noted in the new ZF Automotive petition and its question presented, while the Second, Fifth, and Seventh Circuits have gone with a more limited approach which does not consider these private arbitrable tribunals to fit within the meaning of  the statute and, therefore, have denied discovery requests.

Servotronics was scheduled for oral argument on Oct. 5, the second day of the Court’s term, but removed from the calendar after the arbitration in the case was conducted in the spring, and the parties moved to dismiss the case in the wake of a July award.

For more on the Servotronics case dismissal and the case history, see Bryanna Rainwater, “Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket,” CPR Speaks (Sept. 8) (available here).

The ZF Automotive petitioners urge the Court to clear up the circuit split and decide the true interpretative meaning of §1782. They argue that Servotronics amicus briefs warn that without resolving the §1782 issue for private international tribunals, there could be a disincentive for parties from entering into international contractual agreements.

Respondent Luxshare, a Hong Kong limited liability company, bought ZF AG’s Global Body Control Systems business in August 2017. During this transaction, the parties signed a Master Purchase Agreement which provides that disputes are to be governed under German law. The petitioners noted that Luxshare waited to file a §1782 application for discovery for more than two years after the transaction’s closing in pursuit of the purchaser’s fraud allegations.

Because the arbitration agreement specified that the DIS—that is, the German Arbitration Institute–would provide the panel to arbitrate the issues between the parties, the petitioner argues that the panel does not satisfy the requirement of being a “tribunal” within the meaning of §1782.

Luxshare filed the original claim in Michigan’s federal Eastern U.S. District Court under §1728 to seek discovery—documents and testimony–from ZF Automotive US and the officers before the arbitration. U.S. Magistrate Judge Anthony P. Patti granted the discovery in a limited scope, and ZF Automotive US’s subsequent motion to stay was denied by the district court.

Arguing that the interpretation of the Sixth Circuit—which oversees Michigan cases–is mistaken, the petitioners cite legal scholars, the Court’s own precedent and dictionary definitions to support their proposition that §1728(a) “includes only governmental or intergovernmental adjudicative bodies, and excludes private arbitrators that have no sovereign authority.”

In its reply brief, Luxshare counters that the case is a poor vehicle to examine the statute. “[T]he question presented may not be dispositive of this case, and may not even be necessary to resolve this case,” the reply notes, because even if the foreign tribunal definition included the DIS arbitration panel, their adversaries maintain that there are case-specific reasons for vacating discovery in the case. (The reply brief in opposition to certiorari is available here.)

Moreover, the reply notes that, like Servotronics, the case is likely to become moot before the Court can rule due to the unlikelihood of the petitioners agreeing to extend the time for arbitration.

In fact, the petitioners filed an Oct. 15 application for a Supreme Court stay on discovery to avoid the mootness issue with Associate Justice Brett Kavanaugh, who is the Court’s justice for the Sixth Circuit. (Available here.)

In a response filed yesterday, Luxshare contended that the ZF Automotive petitioners had not met the standards to grant a stay, and added that the stay would injure the company because it “will deny Luxshare the basic right to have its fraud claims against ZF US adjudicated based on the evidence.” 

Luxshare also wrote in its reply that the Court should deny the stay “for the additional reason that it would disserve the public interest, by both frustrating Congress’s purpose in enacting § 1782(a) and permitting fraud to go unremedied.”

An order had not been issued as of this post.

In addition:  ZF Automotive is no longer alone before the Court on § 1782.  The Luxshare brief advocating that the Court deny the cert petition points out that AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States, No. 21-518, covers the same turf.  The Oct. 5 petition (available here) for certiorari asks, similarly, “Whether an ad hoc arbitration to resolve a commercial dispute between two parties is a ‘foreign or international tribunal’ under 28 U.S.C. § 1782(a) where the arbitral panel does not exercise any governmental or quasi-governmental authority.”

* * *

The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern. Alternatives editor Russ Bleemer contributed to this post.

[END]

Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket

By Bryanna Rainwater

The U.S. Supreme Court has dismissed the first arbitration case it had accepted for this fall’s term.

Servotronics Inc. v. Rolls-Royce PLC, et al., Docket No. 20-794, has been officially removed from the Supreme Court’s docket as of today, with the Oct. 5 opening week oral argument wiped off the schedule.  You can see the Court’s order in the docket here.

Petitioner Servotronics’ counsel, issued a Sept. 8 letter to the Court stating it would file a formal dismissal request “within the next few days” per Rule 46 of the Rules of the Court.

The dismissal follows the completion of arbitration in London this summer. The U.S. Solicitor General’s office had requested and been granted permission to participate in the oral arguments.

The issue that was awaiting the Supreme Court was whether the discretion granted to district courts in 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” encompasses private commercial arbitral tribunals, as the Fourth and Sixth U.S. Circuit Courts of Appeal have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.  See Servotronics Inc. v. Rolls Royce PLC, No. 19-1847 (7th Cir. Sept. 22, 2020) (available at https://bit.ly/3dpNyF4).   

Since the Court has declined to hear this case, the future of international private commercial arbitration discovery is still unclear, with pending cases in federal circuit courts.

For more background on the Servotronics history, please see CPR’s coverage:

  1. Cai Phillips-Jones, “United States Submits Amicus Brief in Servotronics International Arbitration Supreme Court Case,” CPR Speaks (July 8) (available here).
  2. Amy Foust, “The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers,” (March 22) (available here).
  3. “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22) (available here).
  4. “CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration,” CPR Speaks (Jan. 6) (available here).
  5. John B. Pinney, “Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?” 38 Alternatives 103 (July/August 2020) (available at https://bit.ly/38PDOSk).
  6. John B. Pinney, “Update: The Section 1782 Conflict Intensifies as the International Arbitration Issue Goes to the Supreme Court,” 38 Alternatives 125 (September 2020) (available at https://bit.ly/3tbgFCX).

The Court recently scheduled its second–and suddenly, sole–arbitration matter for the new term.  Badgerow v. Walters, No. 20-1143, will discuss “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is that the underlying dispute involved a federal question.”  It will be argued on Nov. 2.

* * *

The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern.

[END]

United States Submits Amicus Brief in Servotronics International Arbitration Supreme Court Case

By Cai Phillips-Jones

Multiple parties have filed briefs concerning arbitration discovery rules in a case now before the U.S. Supreme Court for fall argument, Servotronics v. Rolls Royce, No. 794 (see the Court’s official docket at https://bit.ly/3ysbMrL).  

In the case, the Court will decide the question of whether federal district courts can assist with obtaining evidence in foreign arbitration cases at the parties’ request. The argument date has not yet been set.

The U.S. Solicitor General’s office in the Justice Department has filed an amicus brief advocating on behalf of the U.S. government for a narrow interpretation of 28 U.S.C. 1782, a law that has created a split among federal circuit courts. The law allows circuit courts to authorize discovery for litigation originating in “foreign tribunals,” including compelling testimony from witnesses residing in the United States. 

But circuit courts have not been able to agree about whether the law pertains to arbitration taking place in foreign countries: The Fourth and Sixth U.S. Circuit Courts of Appeals support court involvement in discovery for these arbitrations under Section 1782, and the Second, Fifth and Seventh Circuits reject this interpretation of the law.

The Fourth and Seventh Circuits both heard the same Servotronics case that is now on the Supreme Court docket. The circuit courts reached opposite conclusions. For background on the cases’ paths and how the current Seventh Circuit case made it to the Supreme Court, see Amy Foust, “The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers,” CPR Speaks (March 22) (available at https://bit.ly/36cp27K), and “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22) (available at https://bit.ly/3jLbVT3).

CPR, which publishes CPR Speaks, submitted an amicus brief in support of the Servotronics certiorari request in January, which also was the subject of an amicus brief by the Atlanta International Arbitration Society. Since the petition was granted, 11 additional amicus briefs, including the brief of the Solicitor General’s office, have been filed.

Of the group, two state that they do no support either party–those of Prof. Yanbai Andrea Wang, of Philadelphia’s University of Pennsylvania Carey Law School, who asks the Court to clarify the scope of Section 1782, previously interpreted in the Intel case discussed below; and the International Court of Arbitration of the International Chamber of Commerce, which discusses the ICC’s international law views.

Two briefs support the petitioner, submitted on behalf of Columbia Law School Prof. George A. Bermann; and Palo Alto, Calif.-based ADR provider Federal Arbitration Inc.

Seven of the briefs support the respondent in seeking a narrow scope for Section 1782 discovery to exclude international arbitrations. In addition to the U.S. government’s brief, they include briefs submitted on behalf of China and Hong Kong-based arbitrators Dr. Xu Guojian, Li Hongji, Zhu Yongrui, Tang Qingyang, Chi Manjiao, Ronald Sum, and Dr. Zhang Guanglei; the U.S. Chamber of Commerce and the Business Roundtable; International Arbitration Center in Tokyo;  the General Aviation Manufacturers Association Inc. and the Aerospace Industries Association; Halliburton Co., which is facing a Section 1782 issue in a separate case, and the Institute of International Bankers, a New York City-based industry association of international banks operating in the United States.

* * *

In its brief, the government reviews the history of requests for discovery from foreign parties.

According to the amicus brief, prior to 1855, federal courts did not have the authority to compel a witness to testify in a case involving a foreign state party. In 1855, an act was passed by Congress to remedy this, but in a strange twist this law was subsequently “buried in oblivion” due to “a succession of errors in indexing and revising the statutes” and lost to the courts. A similar law was passed in 1877 and, in 1948, the law was broadened to include discovery for non-state parties.

In 1964, the language in the law was broadened again, applying to “a proceeding in a foreign or international tribunal” compared to the previous version’s “any judicial proceeding in any court in a foreign country.” Since then, only one Supreme Court case has discussed the scope of the law, Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241 (2004).

The case concerned the distinction between judicial and administrative processes and whether Section 1782 applied to the latter. The Court found it applied. But recently, disagreement  has sprung up about whether the “foreign tribunal” language includes arbitrations involving foreign parties. The U.S. government has now taken the position that the law should not apply to private foreign arbitrations.

In its brief, United States argues (1) that such discovery functions were not within the scope of Congress’ intent when it passed 28 U.S.C 1782; (2) that interpreting the law to apply to international commercial arbitrations would create asymmetry with the domestic rules of arbitration incorporated in the Federal Arbitration Act; and (3) such an interpretation would create additional problems if extended to investor-state arbitration.

Noting that previous versions of the law clearly referred to only courts, the government acknowledges that the 1964 revision changed this language from “any judicial proceeding in any court in a foreign country,” to “a proceeding in a foreign or international tribunal.” This change, according to the government, and in contrast to the Fourth Circuit’s interpretation, was “only a measured expansion of the provision’s scope to capture quasi-judicial entities (such as investigating magistrates) and certain intergovernmental bodies (such as state-to-state claims commissions).” As the government points out, at the time the 1964 law was passed, international commercial arbitration was still novel, and thus likely outside Congress’s intent.

The government’s second argument discusses the incongruence of the limited discovery available under the FAA to arbitrators, in contrast to the discovery requests available to parties under Section 1782. Interpreting the law to apply to commercial arbitrations would “[allow] more expansive discovery in foreign disputes than what is permitted domestically,” the government’s amicus brief states.

While the court acknowledges that Section 1782 is not coextensive with domestic discovery rules, the “stake asymmetry” produced by a broad interpretation of the law “should [be taken] into account” in determining the law’s scope.

Finally, the government discusses a particular type of arbitration, investor-state arbitration, which gives investors who have claims against a foreign state in which they held an investment a private remedy for losses allegedly caused by the state. Arbitration in this context replaced a more time-consuming and expensive process, diplomatic protection, involving a government negotiating a resolution on behalf of one of its citizens who has suffered an economic injury.

The solicitor general’s amicus brief argues that investor-state arbitrations would be hampered by additional discovery procedures and “upset settled expectations” of investor and state parties entering contracts.

The U.S. government, in addition to filing a brief, has requested permission from the court to argue the case with the parties this fall The Court has not yet acted on the oral argument request, which is expected to be granted.

Meantime, the underlying arbitration in Servotronics has been conducted in London the week of May 10. If a decision emerges before the Court hears the arguments, the existence of an arbitration award could raise questions of mootness.

* * *

The author, a J.D. student who will enter his third year this fall at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.

[END]

Court Declines Question on Email Service, Leaving an International Arbitration Award Confirmation Intact

By Jacqueline Perrotta

Today, the Supreme Court declined to hear Grupo Cementos de Chihuahua S.A.B. de C.V., et al. v. Compañía de Inversiones Mercantiles S.A., No. 20-1033, an international arbitration case regarding a breached stock-purchase agreement. The petitioner had asked the Supreme Court whether service of process by email, in line with Federal Rules of Civil Procedure 4(f)(3), to a foreign entity’s U.S. counsel violates the Hague Service Convention.

This morning’s order list denying cert in Grupo Cementos can be found here.

The Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, better known as the Hague Service Convention, details what constitutes valid service on parties in another country. The petitioner argued that the dispute falls under the Hague Service Convention and “service,” as instructed by the convention, does not include service by email.

The parties are a Bolivian company, Compañía de Inversions Mercantiles S.A. (“Cimsa”), the respondent in the U.S. Supreme Court case and the original plaintiff, and Mexican companies Grupo Cementos de Chihuahua, S.A.B. de C.V. and GCC Latinoamerica, S.A. de C.V. (collectively “GCC”), which appealed the case to the Court (cert petition available here) and who are the original defendants.

GCC had agreed to give Cimsa a right of first refusal if GCC decided to sell shares it acquired in a third-party cement company. GCC sold shares to a Peruvian company, and Cimsa alleged the sale breached its right of first refusal.

The companies had agreed to arbitrate disagreements arising from the stock deal. In a Bolivian arbitration, Cimsa was awarded several million dollars for the breach of its right of first refusal. GCC challenged this decision; litigation over the arbitration damages award is continuing in Bolivia.

This case came before a Colorado U.S. District Court when Cimsa filed an arbitral award confirmation action through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which recognizes and enforces foreign arbitral awards.

Cimsa received court permission to serve GCC through its U.S. counsel, which GCC claimed was improper service. The district court found that alternative service through the GGC’s U.S. Counsel was proper under the Hague Service Convention, and confirmed the award.

The Tenth U.S. Circuit Court of Appeals affirmed that service was proper, and also affirmed the district court’s decision to back the Bolivian arbitration tribunal’s decision. Compania De Inversiones v. Grupo Cementos de Chihuahua, No. 19-1151 (10th Cir. 2020) (available at https://bit.ly/3vBlh65).

In holding that the district court correctly confirmed the arbitration tribunal, the Tenth Circuit found that courts construe the New York Convention defenses to enforcing awards “`narrowly’ to ‘encourage recognition and enforcement of commercial arbitration contracts’ citing OJSC Ukrnafta v. Carpatsky Petroleum Corp., 957 F.3d 487, 497 (5th Cir. 2020).

By affirming the district court’s decision, the Tenth Circuit has found that proper service under the Hague Convention includes service by email. By this morning’s Supreme Court action, that case stands, and the arbitration award’s confirmation will not be affected.

At the same time, in its cert petition, GCC had challenged the U.S. award confirmation on the basis that the U.S. courts did not have sufficient contacts for personal jurisdiction, which was also the subject of then-pending U.S. Supreme Court cases, Ford Motor Co. v. Montana Eighth Judicial District Court, No. 19-368 and Ford Motor Co. v. Bandemer, No. 19-369 (S. Ct.).  The Court decided the consolidated cases in Ford Motor Co. v. Montana Eighth Judicial District Court, No. 19-368 (March 25, 2021) (available at https://bit.ly/3wU5sbO).

With today’s cert denial, the Court also declined the petitioners’ suggestion to grant certiorari, vacate the matter, and remand for a decision on personal jurisdiction in accordance with the Ford Motor decision.

GCC’s Supreme Court cert petition can be found at https://bit.ly/2SOkTnl

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The Court today declined to hear a second arbitration case, Amazon.com Inc., et al. v. Bernard Waithaka, No. 20-1077.

Amazon had asked the Court to consider ” Whether the Federal Arbitration Act’s exemption for classes of workers engaged in foreign or interstate commerce, 9 U.S.C. 1, prevents the Act’s application to local transportation workers who, as a class, are not engaged to transport goods or passengers across state or national boundaries.”

Amazon had cited conflicting lower court authority on whether drivers who signed up for an Amazon distribution program and who stayed within state lines could avoid arbitration provisions under the FAA exemption in their disputes with online retailing giant.

Both the federal district court and appeals court declined to compel arbitration. Those decisions stand, with other cases still pending. Earlier this year, in a similar case Amazon linked to today’s decision, the Court declined cert in Amazon.com Inc. v. Rittmann, No. 20-622 (Feb. 22).

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The author, a J.D. student who will enter her second year this fall at Brooklyn Law School, is a 2021 CPR Summer Intern.

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