Oral Argument in ZF Automotive Generates More Confusion Than Clarity on the Availability of U.S. Discovery for Use in International Arbitration
March 30, 2022
Last week, the Supreme Court heard oral arguments in two consolidated cases asking whether U.S.-style discovery under 28 U.S.C. § 1782 is available for use in, respectively, international commercial arbitration and investor-state arbitration. These questions stem from a statutory ambiguity that has caused widespread uncertainty in international arbitration, and it may not be resolvable based on statutory interpretation or congressional intent.
28 U.S.C. § 1782
Enacted in 1964, § 1782 makes compelled discovery in the United States widely available “for use in a proceeding in a foreign or international tribunal.” When the Court previously took up § 1782 in Intel v. Advanced Micro Devices (2004), it gave the statute an astonishingly broad interpretation cabined only by judicial discretion. Under Intel, § 1782 discovery is available (1) to any party or non-party with procedural rights, (2) in a foreign or international proceeding before any first-instance decisionmaker, (3) as soon as the proceeding is contemplated, and (4) regardless of whether the sought-after discovery is permitted under the rules of the tribunal. Instead of bright-line rules, the Court instructed federal district courts to exercise discretion while considering several factors, including whether the tribunal is receptive to U.S. discovery assistance and whether the request is an effort to circumvent discovery restrictions in the foreign forum.
Since 2004, the use of § 1782 has exploded. In my research, I find that the number of civil discovery requests nationwide quadrupled between 2005 and 2017. Many requests seek pre‑filing discovery, discovery for use in international commercial arbitration or investor-state arbitration, and discovery for simultaneous use in multiple proceedings. Nearly all requests—over 90%—are granted. As use of the statute grew, a prominent circuit split emerged as to whether § 1782 permits federal courts to compel discovery for use in international commercial arbitration. The Fourth and Sixth Circuits have said yes, while the Second, Fifth, and Seventh Circuits have said no.
The first of the two consolidated cases, ZF Automotive v. Luxshare, addresses the circuit split in the context of a contemplated commercial arbitration before the German Institution of Arbitration. The second case, AlixPartners v. The Fund for Protection of Investors’ Rights in Foreign States, concerns a discovery request for use in arbitration under a bilateral investment treaty (BIT) between Russia and Lithuania. Although appellate courts agree that § 1782 encompasses investor-state arbitration, the Court granted certiorari to review the question and consolidated the cases.
Last Wednesday’s oral argument approached the questions presented from various angles, including statutory interpretation, congressional intent, and implications for comity and U.S. foreign relations. On each of these topics, the discussion was muddled and did not point in a clear direction.
The statutory interpretation angle focused on whether the phrase “foreign or international tribunal” includes international commercial arbitration and investor-state arbitration. The initial question is whether the language requires merely that the tribunal be located in a foreign country—a standard that both commercial and investor-state arbitral tribunals could easily surpass—or whether it requires some governmental involvement in the tribunal—a bar that would be harder to meet. On this question, Justice Kagan doubted whether anything meaningful could be drawn from the language, and counsel for petitioner ZF Automotive US, Roman Martinez, conceded that the statutory language alone is not “a slam dunk” for his client.
Assuming that some governmental involvement is required, the subsequent question is what type of governmental involvement would be sufficient. The Court returned to this question over and over without making much headway. Martinez and counsel for petitioner AlixPartners, Joseph Baio, proposed at various points that a tribunal is sufficiently “governmental” to come within the ambit of § 1782 if it is established under the laws of a foreign country, exercises authority conferred by the government, and owes its existence and powers to an international agreement between or among sovereign nations. Asked whether those criteria mean the arbitrators themselves must be appointed, paid for, or removable by the government, Martinez responded that they are all relevant factors but not the only test, circling back to the ambiguity surrounding what “governmental” requires.
The Court seemed to converge on two possible lines of reasoning. One requires governments to directly set up the tribunal. This requirement would exclude international commercial arbitration as well as investor-state arbitration under BITs, the latter of which creates a system for invoking arbitration and selecting arbitrators but does not directly provide for the formation of arbitral tribunals. The other line of reasoning requires that the dispute be state-to-state. That requirement would also exclude international commercial arbitration, which is typically between private actors, and investor-state arbitration, which is typically between a state and a private investor. But these distinctions, too, are unsatisfying. Justices Kagan and Barrett both asked why states must undergo the expense and work of creating the arbitral tribunal when they prefer to create a system that provides for convening an arbitral tribunal when a dispute arises. And the Court itself seemed hesitant to draw the state-to-state line given that neither of the consolidated cases involves a state-to-state arbitration.
Comity and Foreign Relations
The Court also examined the issues from the perspective of comity, as the 1958 congressional directive to draft § 1782 explained that the purpose of the legislation was to promote comity by improving assistance to foreign courts and quasi-judicial agencies, thereby encouraging foreign countries to return the favor. Arguments surrounding comity, however, cut in both directions. Counsel for the United States, Edwin Kneedler, asserted that providing discovery assistance to private arbitrators does not promote comity because private arbitrators cannot reciprocate by providing U.S. litigants access to foreign discovery. Responding to that argument, counsels for Luxshare and The Fund for Protection of Investor Rights in Foreign States, respectively Andrew Davies and Alexander Yanos, pointed out that countries like Turkey and Ecuador have themselves invoked § 1782. They also pointed out that countries, including the United Kingdom, France, Sweden, and Switzerland, have in fact reciprocated by providing discovery assistance for international arbitration. Kneedler then argued that the use of § 1782 discovery in investor-state arbitrations could undermine comity through unwanted intrusion into arbitrations involving foreign governments or foreign private parties. But § 1782 poses the same risk in the litigation context where the provision clearly applies.
In the absence of clarity surrounding the text of and intent behind § 1782, two justices focused on alternative approaches that sidestep these seemingly intractable questions. First, Justice Breyer repeatedly suggested that the solution to the central practical problem of unwanted meddling in arbitral proceedings abroad is to modify Intel by adding a requirement that discovery under § 1782 can only be ordered if the foreign tribunal indicates that it wants the discovery. I argued for this modification in my amicus brief. This additional requirement would improve the functioning of § 1782 not only for arbitral tribunals but for other applications as well. Second, Justice Gorsuch suggested that if Congress never contemplated international arbitration as it exists in today’s world, the Court should err in the direction of leaving those questions to the political branches. If the Court moves forward with one of these approaches, we may see further developments down the line. A decision is expected by the end of June.