Supreme Court (all but) ends the use of 28 U.S.C. 1782 for international arbitration

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In ZF Automotive U.S., Inc. v. Luxshare, Ltd., the U.S. Supreme Court unanimously determined that 28 U.S.C. § 1782—a U.S. statute that allows participants in a “proceeding in a foreign or international tribunal” to discover evidence found in the United States in aid of that proceeding—is not available for private commercial arbitrations or at least some investor-state arbitrations. This decision rejected dicta from the Supreme Court’s nearly twenty-year-old decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), which suggested that Section 1782 could be used to obtain evidence in aid of foreign commercial arbitrations. ZF Automotive resolves a long-standing circuit split on this issue (about which we have previously written). Up until now, the availability of § 1782 had been a powerful tool in certain circuits to obtain necessary discovery in aid of an international arbitration.

The ZF Automotive decision concerned two separate disputes. The first was a private commercial arbitration seated in Berlin, governed by German law, administered and subject to the rules of the German Arbitration Institute (Deutsche Institution für Schiedsgerichtsbarkeit or “DIS”). The second was an ad hoc investor-state dispute governed by UNCITRAL Rules brought pursuant to the Russia-Latvian bilateral investment treaty.[1]

The key question for the Supreme Court was whether these arbitration tribunals constituted a “foreign or international tribunal” under Section 1782. The Supreme Court acknowledged that a “tribunal” need not be a court and encompassed other types of adjudicative bodies. But the Supreme Court held that a “foreign or international tribunal” must be “an adjudicative body that exercises governmental authority.” In the Supreme Court’s view, the “tribunal” expressly referenced in Section 1782 “more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation.” The Supreme Court buttressed its opinion with language from Section 1782 that provides “[t]he order [for the discovery] may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or the international tribunal.” According to the Supreme Court, that language implied that the “foreign country” – and not the private arbitral body – must provide the rules and that an “international tribunal” required two or more nations be involved.

The Supreme Court, despite notable commentaries arguing otherwise, also concluded that the statutory history of Section 1782 did not reflect an intent to cover private arbitrations. Nor, it found, would inclusion of private bodies further international comity, so that foreign governments would lend assistance to U.S. litigants abroad. Finally, the court reasoned that because the Federal Arbitration Act limits discovery in U.S.-seated arbitrations, a broader interpretation of Section 1782 to cover private arbitrations would create a “mismatch.” This “mismatch” rationale appears to be particularly tenuous because international arbitrations (governed by the New York Convention, see 9 U.S.C. § 201 et seq.) have always been dealt with separately from domestic standard (governed by the Federal Arbitration Act, see 9 U.S.C. § 1 et seq.). This point is only exacerbated by the Supreme Court’s recent ruling in Badgerow v. Wolters—domestic arbitrations seated in the United States and international arbitration seated abroad are treated differently by legislation, which justifies the different discovery devices. Ironically, an effect of Badgerow and ZF Automotive is that domestic arbitrations may now offer broader discovery to parties in arbitration because state courts (particularly in jurisdictions that have adopted the Revised Uniform Arbitration Act) are poised to become the predominant court fora for disputes relating to U.S. arbitrations.

After interpreting the statute, the Supreme Court applied its reasoning to both private and investor-state arbitration. The private arbitration issues appear to have been easy for the Supreme Court, insofar as private arbitration is a creature of contract and private rules between the parties.

Investor-state disputes, which are not based on private commercial contracts but, rather, bilateral or multilateral investment treaties executed between sovereign governments, posed a more difficult question for the Supreme Court. This is because authority is conferred on tribunals overseeing investor-state disputes via international treaties, so that these tribunals more closely resemble “foreign or international tribunals” under Section 1782 than commercial arbitration tribunals. Notwithstanding this distinction, the Supreme Court ultimately rejected that interpretation, reasoning that investor-state tribunals exist because states “consented to the arbitration” and not, in the Supreme Court’s formulation, because the underlying treaty “clothed the panel with governmental authority.”  

Notably, the ZF Automotive opinion did not concern an ICSID investor-state proceeding but rather an ad hoc investor-State arbitration between Russia and Latvia governed by the UNCITRAL Rules. Whether this ruling applies to investor-state disputes brought within the self-contained legal framework of the Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States which establishes ICSID appears to remain an open question. The Supreme Court held that Section 1782 did not apply to an ad hoc arbitration because “the [bilateral investment] treaty [between Russia and Latvia] does not itself create the panel” but “instead it simply references the set of rules that govern the panel’s formation and procedure if the investor chooses that forum.” This ruling, however, cannot be easily extended to arbitrations governed by the ICSID Convention, a multilateral treaty that creates a permanent institution for the resolution of investor-state disputes, delineates the powers and functions of the tribunal; provides that the resulting awards are binding as a matter of public international law and, further, that they shall have the status of final judgments in all 157 ICSID Convention States. These characteristics suggest that the tribunals overseeing ICSID investor-state arbitrations may well qualify as “international tribunals” under Section 1782 even after applying the Supreme Court’s analysis in ZF Automotive

The Supreme Court’s decision forecloses what had been an increasingly attractive strategy for parties to foreign-seated arbitrations seeking discovery from parties or third parties subject to U.S. jurisdiction and arguably represents a step back from the Supreme Court’s prior Intel decision, which had implied a contrary result. Parties will need to explore other options to obtain this discovery, including careful drafting of arbitration clauses and consideration of whether ICSID is a more favorable forum if available and third-party discovery is necessary in an investor-state arbitration.   

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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