Questions Remain as Supreme Court Restricts § 1782 Discovery in Private International Arbitrations
The Situation: Section 1782 of Title 28 of the U.S. Code authorizes U.S. district courts to order discovery "for use in a proceeding in a foreign or international tribunal." Over the last several years, U.S. courts of appeal had disagreed regarding whether the statute could be used in aid of international commercial arbitrations.
The Result: In June 2022, the Supreme Court held that § 1782 authorizes discovery to assist only governmental or intergovernmental adjudicative bodies, not private adjudicative bodies like the international commercial and investor-state arbitrations before the Court.
Looking Ahead: Litigation will arise regarding whether any arbitral tribunals are sufficiently imbued with sovereign authority to permit § 1782 discovery. Disputes will also play out regarding whether evidence that was obtained through § 1782 prior to the Supreme Court's decision is admissible in ongoing arbitrations. Finally, parties are likely to explore alternative mechanisms through which to obtain third-party evidence.
The Cases Before the Court
In December 2021, the Supreme Court granted certiorari in two cases, which it consolidated, presenting the questions whether § 1782 could be invoked in aid of international commercial arbitrations or investor-state arbitrations.
In ZF Automotive US, Inc. v. Luxshare, Ltd., a U.S. company and a Hong Kong company had agreed to resolve disputes in a private commercial arbitration in Germany. Before initiating arbitration, Luxshare sought § 1782 discovery from ZF. A Michigan district court granted the discovery, and the Sixth Circuit denied a stay.
In AlixPartners, LLP v. The Fund for Protection of Investors' Rights in Foreign States, a Russian corporation had commenced an arbitration against the Government of Lithuania under the Bilateral Investment Treaty ("BIT") between Russia and Lithuania. That BIT authorizes an investor to initiate ad hoc arbitration in accordance with the United Nations Commission on International Trade Law ("UNCITRAL") Arbitration Rules, with each party choosing one arbitrator and those two arbitrators selecting the third. The Fund filed a § 1782 application in the Southern District of New York, seeking discovery from AlixPartners and an individual. The district court granted the request, and the Second Circuit affirmed.
The Court's Analysis
The Supreme Court unanimously held that § 1782 "requires a 'foreign or international tribunal' to be governmental or intergovernmental," and that neither adjudicative body qualified. Looking at the language of § 1782, the Court reasoned that, attached to the modifiers "foreign or international," "'tribunal' is best understood as an adjudicative body that exercises governmental authority." Specifically, it found that a "foreign tribunal" is "a tribunal imbued with governmental authority by one nation," while an "international tribunal" is "a tribunal imbued with governmental authority by multiple nations."
The Court found support for its holding in the statute's history, which makes clear that § 1782's "animating purpose" is comity—respect for "foreign nations and the governmental and intergovernmental bodies they create." The Court further reasoned that "[e]xpanding § 1782 to include private bodies would also be in significant tension with the Federal Arbitration Act ("FAA"), which governs domestic arbitration, because § 1782 permits much broader discovery than the FAA allows." The Court saw no reason to give foreign parties more access to discovery in U.S. courts than domestic ones.
The Court found the ZF Automotive case to be "straightforward" because a private commercial dispute governed by a private contract and arbitrated through private dispute resolution was plainly not governmental.
The Supreme Court acknowledged that the ad hoc investor-state arbitration in AlixPartners presented a "harder question" given that "[a] sovereign is on one side of the dispute, and the option to arbitrate is contained in an international treaty rather than a private contract." The Court noted that the BIT gave investors the option to resolve disputes before a governmental body, but that the investor there chose arbitration before an ad hoc panel; the treaty itself did not create the panel, but simply referred to the set of rules that governed its formation and procedure; the panel functioned independently of the two sovereigns with arbitrators chosen by the parties; and there were no "other possible indicia of a governmental nature." The Court therefore reached the same result as in ZF Automotive, finding no evidence that the governments of Russia or Lithuania "intended that the ad hoc panel exercise governmental authority."
1. What arbitral tribunals may Section 1782 cover?
The Supreme Court did not "foreclose the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority." Future litigation, therefore, will test the boundaries around which sorts of tribunals might be imbued with such governmental authority.
For example, the Court's decision leaves unanswered whether a tribunal constituted under the International Centre for the Settlement of Investment Disputes ("ICSID") Convention would qualify as a "foreign or international tribunal." ICSID arbitration is organized under a multilateral treaty that establishes a permanent institution for the resolution of investor-state disputes, in which member states play a significant role, including by participating in an administrative council that meets annually. Moreover, ICSID's self-contained legal system provides that resulting awards shall have the status of final judgments and shall be automatically enforceable in all ICSID member states. The application of ZF Automotive to § 1782 petitions arising out of ICSID arbitration is before lower courts.
2. Effect of the decision on pending arbitration
Similarly, questions are likely to arise with regard to discovery that was successfully obtained through § 1782 prior to the Supreme Court's decision and whether it can still be used in an ongoing arbitration. Ultimately, arbitral tribunals will decide whether to allow the admission of such evidence where the Supreme Court decision may have cast doubt on whether such evidence should have been obtainable in the first instance.
3. Potential Alternatives for Discovery
In the wake of the Supreme Court's decision, arbitral parties in need of third-party discovery will have to explore alternative mechanisms. For example, Section 7 of the FAA may be available to parties to arbitrations seated in the United States. That provision authorizes arbitrators to "summon . . . any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case," and if persons so summoned refuse to obey, district courts may compel their attendance or punish them for contempt.
Where parties to a private arbitration are seeking discovery from persons or entities located in New York, Section 3102 of the New York Civil Practice Law and Rules ("CPLR") may be another available tool. It affords an opportunity to seek discovery "to aid in arbitration" and therefore may serve as a suitable replacement for § 1782 assistance.
Moreover, parties seeking evidence might try to get around the new limitations on § 1782 relief in aid of arbitration proceedings by basing their applications, instead, on court proceedings affiliated with the arbitration. Under the 2004 Supreme Court decision Intel Corp. v. Advanced Micro Devices, Inc., such foreign court proceedings need only be in "reasonable contemplation," not "pending" or even "imminent." Given that flexibility, some parties to an arbitration but without yet-existing court proceedings may consider invoking future court proceedings, such as future actions to enforce an arbitration agreement or award, as a potential basis for seeking § 1782 discovery. There may be corresponding litigation revisiting that portion of Intel and establishing more detailed guidance as to the required strength of the nexus between a pending arbitration and future foreign court proceedings.
Still, parties to arbitration proceedings seated abroad may seek discovery aid from courts at the seat. For example, the English Arbitration Act empowers English courts (in certain limited circumstances) to order third-party discovery for arbitrations seated in England, and even for arbitrations seated abroad, although little case law exists regarding how the court should exercise its discretion for arbitrations seated outside of England. Moreover, while the English Arbitration Act provides a mechanism in specific situations for obtaining discovery for use in English arbitrations, it has limitations: It (i) is less expansive than U.S.-style discovery; (ii) will not allow parties to obtain documentary evidence from a person located outside the United Kingdom ("UK"); and (iii) requires either permission of the arbitral tribunal or the agreement of adverse parties. Nonetheless, the English Arbitration Act may prove a useful tool in certain circumstances, such as when a party is in a dispute with a U.S. company and relevant documents are held by that company's English affiliate, or the party requires evidence from a witness located in the UK.
In addition to relying on the aforementioned discovery tools, parties should pay particular attention to their arbitration clauses and applicable arbitral rules, which may shape and limit their document production options. In particular, parties may want to begin incorporating greater specificity into their contracts regarding audit rights or the scope of document production in arbitration, which could broaden or narrow access to documents in the event of a dispute.
Three Key Takeaways
- While the Court's ruling limits the ability of parties to seek discovery before U.S. courts in aid of certain arbitration proceedings—i.e., private commercial arbitrations and ad hoc investor-state proceedings—it leaves open the question of whether other international arbitration tribunals can be considered "governmental or intergovernmental adjudicative bod[ies]."
- Litigation may arise with regard to whether discovery that was successfully obtained through § 1782 prior to the Supreme Court's decision can be used in ongoing arbitrations.
- Parties to arbitrations will look to employ workarounds to obtain third-party evidence, such as through Section 7 of the FAA, Section 3102 of the New York CPLR, anticipated future court proceedings relating to an arbitration, the English Arbitration Act, or the invocation of contractual rights.
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