Lower Court Grapples with Supreme Court Ruling on Section 1782 and Investor-State Arbitration
November 15, 2022
Back in June 2022, the U.S. Supreme Court resolved a circuit split on the applicability of Section 1782’s discovery tools for private commercial arbitration, and simultaneously addressed a related issue of Section 1782’s use in investor-state arbitration. The investor-state issue came to the Court in the case of AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, which was consolidated with ZF Automotive v. Luxshare on the issue of private commercial arbitration.
While the Supreme Court issued a clear, bright-line ruling on Section 1782 for private commercial arbitration – nope, not allowed – its ruling on investor-state arbitration was less clear. The court held that, although the ad hoc tribunal in that case was non-governmental, and therefore did not qualify for Section 1782, “[n]one of this forecloses the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority.” The Court opened the door to further litigation with its comment that “[g]overnmental and intergovernmental bodies may take many forms, and we do not attempt to prescribe how they should be structured.” Cue the litigation over what kinds of “governmental and intergovernmental bodies” for investor-state arbitration would qualify for Section 1782 discovery.
In In re Alpene, Ltd., the Eastern District of New York (Magistrate Judge Robert Levy) recently became the first lower court to address Section 1782’s application to investor-state arbitration after AlixPartners. The court considered whether AlixPartners bars a Section 1782 petition in conjunction with an arbitration proceeding before the World Bank’s International Centre for the Settlement of Investment Disputes (“ICSID”). The court concluded that ICSID is not a “foreign or international tribunal” under Section 1782, as that term has now been clarified by the Supreme Court. Although the decision indicates that lower courts may be unwilling to authorize Section 1782 for use in investor-state arbitration after AlixPartners, it does not foreclose the possibility that a different arbitral body would be sufficiently “imbued with official authority” to support Section 1782 discovery – or that another trial court would reach a different conclusion about ICSID.
A Section 1782 Primer
28 U.S.C. § 1782 authorizes federal courts to order persons in the United States to give testimony or produce documents “for use in a proceeding in a foreign or international tribunal.” The statute requires: (1) that the person from whom discovery is sought reside (or be found) in the district of the district court to which the application is made; (2) that the discovery be for use in a proceeding before a foreign or international tribunal; and (3) that the application be made by a foreign or international tribunal or “any interested person.”
The Supreme Court’s decision in ZF Automotive and AlixPartners addressed part of the second element, namely what constitutes a “foreign or international tribunal.” Prior to that decision, a deep circuit split had developed about whether private commercial arbitration was a “foreign or international tribunal.” Although the Court also granted cert for AlixPartners on the question of Section 1782 for investor-state arbitration, no comparable circuit split had developed on that issue, with most lower courts having concluded that Section 1782 did apply.
In re Alpene Factual and Procedural Background
Petitioner Alpene is a Hong Kong corporation and a claimant in an investor-state arbitration against the Republic of Malta. Alpene commenced the arbitration before ICSID. Subsequently, Alpene sought discovery under Section 1782 from a resident of New York for use in that arbitration.
Behind this investor-state arbitration is a Bilateral Investment Treaty between Malta and China. The treaty provides that an investor’s claim against one of the treaty parties could be brought in: (1) a court in the country that is party to the dispute; (2) arbitration before ICSID; or (3) ad hoc arbitration under a specified set of rules.
ICSID operates under the authority of the World Bank, an intergovernmental organization. ICSID was established in 1966 – only two years after the amendments to Section 1782 that added the phrase “foreign or international tribunal” to that statute.
Procedurally, the Alpene petition followed a typical but less common initial path for Section 1782. The initial Section 1782 petition was granted without opposition, but only after the petitioner had served the discovery target. More often, Section 1782 petitions are adjudicated ex parte, and the discovery target is given notice only after the subpoenas are authorized and issued. A few weeks after the order was granted in this case, the discovery target popped up and filed a motion to vacate and to quash the subpoena. Shortly thereafter, the Supreme Court granted certiorari in AlixPartners to resolve a potentially dispositive issue, and the Alpene matter was stayed.
The Court’s Analysis
To decide whether Section 1782 applied, the Alpene court looked at whether the parties to the treaty – Malta and China – intended to “imbue the ICSID arbitration panel with governmental authority.” The court examined several factors to conclude that the ICSID arbitration body was not sufficiently governmental to qualify under Section 1782.
First, the list of dispute resolution options in the investment treaty included the home-country courts. The inclusion of an obviously governmental body made the ICSID tribunal seem more starkly non-governmental by contrast. Second, the treaty said nothing explicitly about imbuing ICSID with governmental authority.
Third, ICSID shares some similarities with the AlixPartners ad hoc panel, although, frankly, the “similarities” identified do not seem particularly salient. Fourth, although there are some differences between an ICSID tribunal and the AlixPartners ad hoc panel, those differences were not dispositive. (I provide further discussion of ICSID’s operations below.)
Fifth, unlike a governmental or judicial body, ICSID is not capable of granting reciprocal discovery to domestic courts. The Supreme Court in ZF Automotive had specifically noted that “the 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.”
Sixth, Section 1782 discovery is much broader than discovery under the Federal Arbitration Act for U.S. arbitration proceedings. Authorizing discovery for an ICSID arbitration would therefore create a “mismatch” between foreign and domestic arbitrations.
Ultimately, the Alpene court easily concluded that ICSID is not a “foreign or international tribunal” for purposes of Section 1782, and therefore granted the respondent’s motion to vacate and quash.
Assessment
One of the best features of the straightforward, concise decision on ZF Automotive was this bright-line result: “Private adjudicatory bodies do not fall within §1782.” The decision about investor-state arbitration was less clear.
The nature of ICSID is such that another court could reach a different conclusion about whether it is sufficiently “imbued with governmental authority” to qualify as an international tribunal for Section 1782 discovery. In ZF Automotive, the Supreme Court concluded that “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.” ICSID is a well-established arbitral body with more than 150 member states and significant bureaucratic heft. It has a large Administrative Council, with representatives from all member states, that meets at least annually. Unlike an ad hoc panel, ICSID is a permanent institution, established by agreement among many nations.
Perhaps most significantly, final arbitral awards from ICSID are given the status of final judgments among member states and are binding “as a matter of public law” in all member states. This obligation to enforce the arbitral award as if it were a domestic judgment gives a distinct governmental flavor to ICSID. And that governmental-ish authority was undoubtedly “conferred by two or more nations” as members of ICSID. Through that lens, it is easier to see how ICSID could be deemed an “international tribunal” for purposes of Section 1782.
However, the Supreme Court’s underlying message in ZF Automotive and AlixPartners is clear: use of Section 1782 should be restrained rather than unleashed. Taking that message to heart, a lower court would be well-advised to conclude that Section 1782 should not apply to a maybe-kind-of-governmental-ish body like ICSID.
The Alpene court heard this message and took it into consideration. The court recognized that ZF Automotive and AlixPartners signaled the Supreme Court’s desire to “limit the availability of discovery in U.S. courts for international commercial arbitrations,” and that precluding Section 1782 discovery for this ICSID arbitration would be consistent with that spirit.
One can expect further litigation, in the wake of AlixPartners, over arbitral bodies with government ties. One such body is the China International Economic and Trade Arbitration Commission (“CIETAC”), which began as governmental affiliate but has become more independent over time. In a pre-AlixPartners decision, Hanwei Guo v. Deutsche Bank Securities, the Second Circuit held that Section 1782 does not apply to CIETAC arbitration, concluding that CIETAC now has a “low degree of state affiliation” and a “high degree of independence and autonomy.” But a different court could reach a contrary conclusion, with reference to the Supreme Court’s further guidance in ZF Automotive and AlixPartners. Moreover, the Guo court recognized that CIETAC also handles “certain contractual disputes arising between investors and Chinese governmental entities.” CIETAC’s role in those disputes may present a closer call for whether Section 1782 discovery would be available.
Conclusion
Section 1782 discovery can be a powerful tool, both as a fact-finding mechanism and as a strategic opportunity. Given its potency, I expect to see parties continuing to test the boundaries of its application to foreign or international arbitration, especially investor-state arbitration.