Highlights from the Media Coverage of ZF Automotive

The Supreme Court’s unanimous decision in ZF Automotive US, Inc. v. Luxshare, Ltd. has generated discussion, criticism, and approval in the transnational litigation and international arbitration communities. Writing for the Court, Justice Barrett relied on the meaning of the term “tribunal,” specifically when paired with “foreign” or “international,” to resolve a major circuit split and conclude that 28 U.S.C. § 1782 applies only to tribunals exercising government power, not private international arbitral tribunals. The Court also emphasized the comity goals of promoting discovery between governments and the apparent discord between discovery permitted by the Federal Arbitration Act and Section 1782. Neither the commercial arbitration in ZF Automotive nor the investor-state arbitration in AlixPartners satisfied the Court’s new rule.

The decision was released roughly two months after oral arguments, which approached the issue from various perspectives: the plain text of the statute, the degree of governmental involvement, international comity, deference to Congress, and the American Law Institute’s draft Restatement of the U.S. Law of International Commercial and Investor-State Arbitration—which made the case particularly difficult for Justice Breyer, who had trouble with the diverging views of the U.S. Government and the scholars who authored the Restatement. Writing for TLB, Andrea Wang described the “muddled” discussion, which did not appear to indicate the way in which the Court would resolve the issue.

Coverage of the Court’s decision includes those who applaud the Court’s new bright-line rule and the clarity it brings, and those who are deeply critical of the Court’s sparse reasoning.

Those Who Approve…

The primary argument in favor of the Court’s decision and reasoning is the need for bright-line rules and clarity.

In her analysis (aptly entitled “I Can See Clearly Now the Rain Is Gone…”), Dana MacGrath, writing on the Kluwer Arbitration Blog, praises the Court for empowering lower courts to “see clearly” in interpreting the phrase “foreign or international tribunal.” She emphasizes the differing appellate court approaches to Section 1782 with “internally inconsistent or incomprehensible reasoning” and argues that the Court’s decision is a rational and coherent example of statutory interpretation.

Writing for JD Supra, Tatiana Sainati and fellow attorneys at Wiley Rein similarly highlight the clarity provided by the decision, as well as the benefits of reducing “burdensome” Section 1782 cases on the dockets and of leveling the playing field for all parties to private international arbitration. Katie Burghardt Kramer’s analysis for TLB also emphasizes the practical benefits of the “refreshingly” bright-line rule—­as do Minyao Wang’s on SCOTUSblog and Lawrence Newman and David Zaslowsky’s in the New York Law Journal.

Also writing for TLB, Peter Rutledge commends the Court for reducing the confusion created by Intel Corp. v. Advanced Microdevices, Inc., which eliminated categorical limits on Section 1782 discovery in favor of broad definitions and discretion. Rutledge is unique in his discussion of the Court’s straightforward, textualist approach: while most others who approve of the decision focus on the benefits of the rule created, he directly engages with the statutory language and context of the term “tribunal” in support of the Court’s reasoning. He finds that the surrounding sections of the U.S. Code—specifically, 28 U.S.C. §§ 1691, 1781, and Section 7 of the FAA—and statutory antecedents to Section 1782 cast doubt on a broad interpretation and illustrate that the use of the term “tribunal” has been historically limited to courts and intergovernmental adjudicatory bodies.

Similarly, writing for Letters Blogatory, Ted Folkman praises the decision as in line with the logic of the statute, stating that its text “makes it clear that Congress didn’t intend to reach every body that adjudicates things.” Folkman agrees with Justice Barrett and the U.S. Government’s reasoning that “foreign” and “international,” when modifying the term “tribunal,” indicate a governmental requirement in the same way the phrase “foreign leader” indicates a head of state.

… and Those Who Don’t

Those who disapprove of the Court’s decision in ZF Automotive all criticize the “arbitrary” interpretation of “foreign and international tribunals.” The degree of disapproval ranges from disappointment and begrudging acceptance to complete and heated rejection.

While George Bermann’s TLB post views the Court’s decision as rational in light of the limited domestic discovery provided by the FAA and the broader discovery allowed under Section 1782, he finds the Court’s reasoning “lackluster.” Unlike Rutledge, who does not believe the Court deferred to the government’s interpretation of the statute, Bermann views the U.S. Government’s involvement as much more influential on the Court’s decision. Bermann questions the Court’s reasoning that a “tribunal” must have governmental authority when the term is paired with “international” or “foreign,” instead arguing that the statutory language and plain meaning of the term are compelling reasons for expanding Section 1782 to include private international arbitration. He also criticizes comity justifications, questioning the Court’s conclusion that Congress only sought to aid foreign states and not private bodies.

Similarly, Andrea Wang, writing for TLB, is critical of the Court’s “thin” reasoning. She emphasizes the lack of explanation for why the term “foreign or international tribunal” hinges on the possibility of a governmental connotation. She also notes the disconnect between Congress permitting any “interested person” to obtain discovery and the Court’s decision that discovery in private international arbitration does not promote international comity. Ultimately, like Bermann, she suggests that the Court’s decision is primarily motivated by the U.S. Government’s input—as evidenced by the inclusion of an investor-state arbitration dispute contrary to the lower court consensus and the Department of Justice’s argument that Section 1782 has the potential to undermine international comity.

Matthias Lehmann, writing at Conflict of Laws.net, fully rejects the Court’s reasoning, viewing it as relying on a “dubious literal interpretation” of Section 1782 and as incompatible with the New York Convention drafters’ use of the term “foreign,” as well as with international treatises on “international commercial arbitration.” He also rejects the Court’s comity arguments, emphasizing that other states have an interest in efficient arbitration proceedings and see the dispute resolution tool as equivalent to litigation. Lehmann further breaks from Bermann by asserting that Congress should be the branch to resolve the discrepancy between the FAA and Section 1782. While he recognizes that arbitration will be able to adapt to these changes, he highlights further questions that will likely arise soon—specifically regarding ICSID Tribunals.

Eric van Ginkel’s criticisms on the Kluwer Arbitration Blog are even harsher, questioning the knowledge of the Court and its ability to resolve disputes involving international commercial arbitration. He finds that the Court’s “reasoning borders on the unacceptable” and sees the Court as “obviously unfamiliar” with the realm of international disputes. Van Ginkel also engages in a full analysis of the history of Section 1782, Professor Hans Smit’s insight about Section 1782’s intended function, and the Court’s prior treatment and common usage of the term “tribunal” to illustrate that it includes international arbitral tribunals. Van Ginkel emphasizes that Section 1782’s purpose was to liberalize domestic judicial procedure in aid of foreign judicial proceedings in part to encourage foreign courts to do the same. As such, he asserts that “tribunal” was intended to be interpreted broadly and always included arbitral tribunals, such as those at issue in both ZF Automotive and AlixPartners. Van Ginkel ultimately views the Court’s decision as “regrettable” and asserts that it prioritizes an “unfounded” fear of overburdening federal courts with discovery requests over the needs of the international community.

What’s Next?

The ZF Automotive decision has major implications for international arbitration and, despite creating a bright-line rule, leaves many questions unanswered.

Oliver Armas and fellow Hogan Lovells attorneys’ article for Law360 (republished without a paywall on JD Supra) discusses the importance of forum selection clauses going forward in crafting dispute resolution strategies for international commercial contracts and investor-state treaties, as parties will now have to choose bodies with governmental authority if they want to obtain broad discovery in the United States.

Eric Van Ginkel is also deeply concerned about the future of international arbitration absent Section 1782 because of his perception of the role and importance of the United States in international commercial arbitration, as well as Section 1782’s contributions to improving international arbitration.

Katie Kramer’s TLB analysis insightfully explains the ways that the decision will generate new litigation. It may lead discovery-hungry parties to initiate arbitration-related litigation to get the discovery in aid of that litigation—discovery that is no longer available to aid the arbitration itself. And she points out that discovery is available under Section 1782 if litigation is reasonably contemplated, even if not actually filed. She suggests we will see more cases and more litigation around the “reasonably contemplated” test.

In her post for TLB, Andrea Wang also discusses the possibility of discovery under Section 1782 due to the statute’s “exceedingly broad” nature. Discovery is not only available when litigation is contemplated, but parties also need only satisfy Section 1782 in one of multiple proceedings: if parties seek discovery under Section 1782 for both international arbitration and some other proceeding in a tribunal with governmental authority, they should be able to obtain it. Thus, she asserts, the decision to block discovery in private international arbitration “does nothing” to reduce the burden on judges but instead “opens a window” for further proceedings.

Writing for McDermott Will & Emery, Lisa M. Richman and Maria Cristina Rosales del Prado discuss the possibility of new litigation to determine whether an arbitral tribunal exercises governmental authority. As discussed by OliverArmas and Andrea Wang, the Court left open the possibility that states could grant an arbitral tribunal governmental authority but glossed over the kind and amount of authority that would be sufficient, providing little guidance for the lower courts in determining whether this has occurred. Writing for JD Supra, David Bowker and fellow attorneys at WilmerHale highlight dicta indicating when an international arbitral tribunal may constitute a “foreign or international tribunal” for the purposes of Section 1782, but it is likely that this will lead to case-by-case litigation in the absence of a bright-line rule.

This uncertainty is perhaps most significant in the context of investor-state and International Centre for Settlement of Investment Disputes (ICSID) arbitration. As discussed by Minyao Wang, until ZF Automotive, federal courts across the country uniformly held investor-state arbitrations were eligible for Section 1782 discovery. Parties in certain investor-state arbitrations could potentially continue to meet the Court’s standards as long as the arbitral panels have governmental authority, but there is nothing beyond the previously discussed dicta to guide the lower courts. Further, almost every commentator on the decision has noted that the Court did not address ICSID investor-state arbitrations, which are governed by an intergovernmental institution and a treaty between member states but involve arbitrators who are appointed by a private party. Bowker also highlights the similar question posed by EU Multilateral Investment Court disputes. There is a general consensus that the ICSID question has the potential to generate further litigation—and even conflicts—among the lower courts.

Conclusion

The two emerging views of ZF Automotive are at least partly reconcilable. Those who oppose the decision and those who approve of it generally appear to recognize both the Court’s sparse reasoning and the benefits of a bright line rule, but each side prioritizes different values present or lacking in the opinion. Further, both those in favor and those opposed to the decision have noted similar concerns about future litigation on questions the Court left unanswered. While Justice Barrett’s opinion may have resolved the circuit split for now, it is certainly not the end of the story.