SEction 1782

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

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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 States, No. 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.

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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.

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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.

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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

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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 States, No. 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.

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

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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.

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

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