Parties seeking to use the US court system to facilitate discovery in foreign commercial and investor-state arbitrations may no longer have that option.
The US Supreme Court held in Z.F. Automotive U.S., Inc. v. Luxshare, LTD that 28 U.S.C. § 1782(a), which provides authorization for US courts to order the production of evidence “for use in a proceeding in a foreign or international tribunal,” only applies to proceedings before governmental or intergovernmental adjudicative bodies and not private adjudicative bodies. This decision significantly narrows the current scope of discovery available through the US courts for non-US arbitrations.
The Court granted certiorari in two cases, which were consolidated, to resolve a circuit split on whether private arbitral panels were covered by Section 1782 and to provide clarity on whether certain investor-state arbitration panels qualified as private arbitral panels. In both cases, the district courts had allowed discovery under Section 1782: one of which involved a private tribunal agreed to by the parties’ contract and one of which involved an investor-state ad hoc arbitration tribunal formed under a treaty.
In a unanimous opinion authored by Justice Barrett, the Court held that a “foreign or international tribunal” in Section 1782 includes only governmental or intergovernmental bodies and not private adjudicative bodies.
Section 1782(a) facilitates US-based discovery for use in foreign proceedings in the judicial district where the person from whom discovery is sought resides. The Court determined that although “tribunal” should be interpreted broadly and does not in and of itself exclude private adjudicatory bodies, when modified by “foreign or international,” the phrase is “is best understood as an adjudicative body that exercises governmental authority.” Interpreting the phrase “foreign or international tribunal,” the Court held that “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.”
Turning to the statutory history, the Court explained that, historically, Section 1782 had only been drafted to assist foreign “courts.” Congress adopted the current version based on a proposal from a congressional commission to broaden assistance to foreign public bodies beyond foreign courts.
In explaining its focus on comity with foreign states, the Court signaled it was sensitive to a concern about judicial resources if it adopted a broader interpretation, asking: “Why would Congress lend the resources of district courts to aid purely private bodies adjudicating purely private disputes abroad?” The Court also considered that the discovery allowed under Section 1782 is broader than the discovery permitted under the Federal Arbitration Act, and it could not conceive of a reason for giving parties in private foreign arbitrations greater assistance from the federal courts than in domestic arbitrations.
Applying this ruling to the adjudicatory bodies involved in the two consolidated cases, the Court determined that neither body qualified as a “foreign or international tribunal” for purposes of Section 1782. The first case was straightforward because it involved an arbitral panel formed pursuant to a private contract between private parties proceeding before a private organization.
The second case involved an investor-state arbitration, but the Court held that neither the presence of a sovereign as a party to the dispute nor the fact that the panel was formed pursuant to a treaty rather a private contract was dispositive. The question instead was, under the nations’ treaty, did those nations “intend to confer governmental authority on an ad hoc panel formed pursuant to the treaty?” The Court noted that under the treaty, the claimant/investor had a choice of four forums, but the chosen forum of an ad hoc arbitration panel was not a preexisting body, and the treaty reflected no intent by Russia and Lithuania to imbue the body with governmental authority.
The ad hoc panel was not created by the treaty itself, as the treaty only selected a set of rules for the panel, which in turn governed the panel’s formation and procedure if the investor chose that forum. Those rules provided that the panel functioned independently of either sovereign and consisted of individuals selected by the parties who had no official connection to either state. The proceeding also had no government funding, and the results were not made public except by agreement of the parties. As such, the ad hoc panel was “materially indistinguishable in form and function” from a private arbitral panel and was not a governmental body. However, the Court did not foreclose the “possibility that sovereigns might imbue [a different] ad hoc arbitration panel with official authority.”
Going forward, the Court has essentially foreclosed the use of US courts to facilitate discovery for private commercial arbitrations in foreign countries—including the use of US courts to obtain discovery prior to filing an arbitration demand, as some circuits had allowed—and allows their use only in limited and narrow investor-state arbitrations.
Questions remain as to which investor-state arbitrations will fall within the sweep of this ruling. Specifically, there is an open question as to whether Section 1782 could still apply to tribunals under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID) arbitrations, which can be argued to “exercise governmental authority.” That issue could turn on whether ICSID arbitrations are entitled to comity in US courts.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Houston
David J. Levy
William R. Peterson
Catherine Eschbach
London
David Waldron
Peter Sharp
New York
Brian A. Herman
Philadelphia
Troy S. Brown
Washington, DC
David B. Salmons