The United States Supreme Court Holds 28 U.S.C. § 1782 Does Not Apply to Private International Arbitration Proceedings

In a much anticipated decision by the international arbitration community, the Supreme Court held private adjudicatory bodies do not count as “foreign or international tribunals” for purposes of 28 U.S.C. § 1782.¹ The statute permits federal district courts to order testimony or the production of evidence “for use in a foreign or international tribunal.” First, writing for a unanimous Court, Justice Barrett concluded private arbitral panels fall outside of § 1782’s scope. Second, the Court held “foreign or international tribunals” are “bodies that exercise governmental authority conferred by one nation or multiple nations.”

The Consolidated Cases: Business Deals Gone Sour and Disappointed Investors

The Court consolidated two disputes that presented the same question of law. The first dispute arose between ZF Automotive US, Inc., the German-subsidiary automotive parts manufacturer based in Michigan, and Luxshare, Ltd., a company based in Hong Kong. ZF Automotive sold two business units to Luxshare for nearly one billion dollars. Afterward, Luxshare alleged ZF concealed information that resulted in Luxshare overpaying by hundreds of millions of dollars. The sale contract required private arbitration in Germany, with the Arbitration Rules of the German Institution of Arbitration e.V. (DIS). Luxshare sought information from ZF and two of its officers by filing an ex parte application under § 1782, which the U.S. District Court for the Eastern District of Michigan granted. ZF moved to quash the subpoenas by arguing the private arbitral panel was not a “foreign or international tribunal.” The District Court denied the motion, and the Sixth Circuit denied a request for a stay.

The second dispute revolved around a disappointed Russian investor in a failed Lithuanian bank that had been nationalized and temporarily administered by AlixPartners. Following the AlixPartners’ report, Lithuania began bankruptcy proceedings over the failed bank. The investor assigned its interest to a Russian Fund that then alleged Lithuania expropriated investments in the bankruptcy process. The Fund brought an action against Lithuania under a bilateral investment treaty between the two countries. The treaty provided four dispute resolution options, and the Fund elected an ad hoc arbitration. The Fund sought information from the turnaround group and its leadership under § 1782. The U.S. District Court for the Southern District of New York granted the discovery request and the Second Circuit affirmed, concluding the panel had the functionalities of a “foreign or international tribunal.” The Supreme Court granted certiorari and consolidated the two cases.

“Foreign or International Tribunal” Does Not Include Private Adjudicative Bodies

Under § 1782(a), a district court may order discovery “for use in a proceeding in a foreign or international tribunal.” The Supreme Court first concluded the arbitrational panels at issue would fit into the definition of “tribunal.” However, the Court declined to read the term “tribunal” in isolation; rather, it stated that “foreign” could mean “belonging to another nation or country” or “from” another country. The Court concluded the first meaning “is a better fit” and supports a reading of “foreign tribunal” as “a governmental body.” The Court explained that under this definition a “foreign tribunal” means a tribunal that possesses sovereign authority conferred by a foreign nation. Using the same approach, the Court explained an “international tribunal” is a body that two or more nations have imbued with official power to adjudicate disputes. The Court reasoned that the legislative history of Section 1782 and its predecessor showed an expansion of the types of public bodies covered by the statutes rather than an expansion from public to private bodies covered. The Court also reasoned that expansion of Section 1782 to private arbitral bodies would be inconsistent with the treatment of discovery in domestic arbitral proceedings. The Court quoted Judge Sykes’s opinion in Servotronics, Inc. v. Rolls-Royce PLC, 975 F. 3d 689 (7th Cir. 2020): “It’s hard to conjure a rationale for giving parties to private foreign arbitrations such broach access to federal-court discovery assistance in the United States while precluding such discovery assistance for litigants in domestic arbitrations.”

Private Arbitral Bodies are neither Governmental nor Intergovernmental and Fall Outside the Scope of § 1782

Since neither DIS in Luxshare nor the ad hoc panel in AlixPartners was imbued with official governmental power, neither fell under § 1782. No government was involved in creating the panels at issue or conferring any authority on them. Thus, the Court concluded, they were private adjudicatory bodies.

The Court acknowledged it was a more difficult question whether the ad hoc arbitration panel in AlixPartners was an “international tribunal,” because one party was a sovereign state (Lithuania) and the contract was governed by an investment treaty between Russia and Lithuania. However, the Court stated, “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 a treaty?” The Court answered that nothing in the treaty reflected Russia and Lithuania’s intent that the ad hoc panel exercised governmental authority: It did not receive government funding, the proceedings maintained confidentiality, and the award could be made public only with mutual consent. “That authority [to resolve the parties’ dispute] exists because Lithuania and the Fund consented to the arbitration, not because Russia and Lithuania clothed the panel with governmental authority.” Because all indications pointed to the conclusion that neither country intended that the ad hoc panel exercise governmental authority, the Court held it did not qualify as exercising governmental authority.

Conclusion

For those seeking discovery in the U.S. in aid of a foreign arbitration, the Supreme Court’s decision leaves open an argument of whether a particular foreign arbitral panel is a “foreign tribunal” (one that exercises governmental authority conferred by a single nation) or an “international tribunal” (one that exercises governmental authority conferred by two or more nations). Future litigants will undoubtedly argue the type, sort, and/or amount of governmental authority given to an arbitral panel makes it a foreign tribunal or an international tribunal. The International Center for Settlement of Investment Disputes (ICSID), a body under the World Bank, could very well qualify, while an ad hoc panel applying the rules of well-established arbitral organizations such as the ICC or the ICDR will likely not qualify under the Supreme Court’s test. For the time being, American companies and individuals subject to discovery requests in connection with a private commercial international arbitration proceeding have a very strong defensive mechanism to resist such efforts.

This article was written with the assistance of Foley summer associate and J.D. candidate at the University of Wisconsin Jeffrey Grinde, Jr.