ZF Automotive: Closing a Door, Opening a Window

The Supreme Court’s decision in ZF Automotive US, Inc. v. Luxshare, Ltd. drew a bright line for a statute that is otherwise regulated almost entirely by judicial discretion. In a terse and unanimous opinion, Justice Barrett wrote that Section 1782 does not permit district courts to order discovery for use in private international arbitration. The decision provides clarity on a question that generated a deep circuit split and considerable confusion among practitioners. But that clarity is reached through deceptively simplistic analysis, and the opinion leaves open loopholes that may nevertheless permit Section 1782 to be used in international arbitration.

Splitting Linguistic Hairs

The decision leans principally on statutory language, splitting hairs over the literal meaning of commonly used legal terms. At oral argument in March, Justice Kagan questioned whether any insight could be drawn from the phrase, “foreign and international tribunals,” and counsel for petitioner ZF Automotive conceded that the phrase was not a “slam dunk” for his client’s position that private international arbitration is excluded. The opinion now concludes that the language is sufficiently clear.

The Court acknowledges that both “foreign tribunal” and “international tribunal” could plausibly include private international arbitration—the former if “foreign tribunal” means “a tribunal from another country,” and the latter if “international tribunal” means “a tribunal involving two or more nationalities.” But the opinion settles on an alternative approach: when “foreign” describes “a word with potential governmental or sovereign connotations,” the opinion posits, it suggests governmental authority. Justice Barrett does not explain why the meaning of the phrase should turn on the mere potential for governmental connotations, nor how to determine whether those connotations exist. Unsurprisingly, the decision also leaves unanswered the critical question of what the exercise of governmental authority entails. How much and what kinds of governmental authority are sufficient were central points of confusion during oral argument, which the Court now glosses over.

The Significance of Comity

At oral argument, counsel for the United States asserted that providing discovery to private arbitration does not promote comity—a line of reasoning that the Court now adopts in its opinion. The purpose of Section 1782, Justice Barrett writes, is to promote respect for foreign governments by assisting foreign and international governmental bodies, so “[w]hy would Congress lend the resources of district courts to aid purely private bodies adjudicating purely private disputes abroad?” But the question is more than rhetorical. Whatever Congress’s rationale, it passed a statute that permits any “interested person” to seek compelled discovery from district courts. And the Supreme Court interpreted “interested person” broadly to include any party or non-party with procedural rights in its 2004 decision, Intel v. Advanced Micro Devices.

The United States’ Interest

The opinion’s thin reasoning leaves one wondering how much the involvement of the Department of Justice influenced the Court’s decision. The U.S. and foreign governments have repeatedly intervened in the interpretation of Section 1782, and each time, the Court has aligned with the Department of Justice. In 2004, when Intel and Advanced Micro Devices contested the use of Section 1782 to obtain discovery for use in the European Commission’s antitrust investigations, the European Commission advocated a narrow construction of the statute, whereas the U.S. government pushed for a broad construction. The Court ultimately gave Section 1782 an astonishingly expansive interpretation guided only by judicial discretion, leading to an explosion of Section 1782 usage and much of the confusion that now exists.

Here, the U.S. government successfully urged the Court to take up the question of whether Section 1782 encompasses investor-state arbitration despite lower courts having uniformly concluded that it does. And the Department of Justice’s focus on Section 1782’s potential to undermine comity by permitting district courts to intrude into arbitrations involving foreign governments or foreign parties was persuasive too. The extent of governmental input in Section 1782’s interpretation is a particularly intriguing example of sovereigns weighing in on judicial decisions because the statute implicates a technical, procedural determination squarely within judicial discretion—discovery.

Closing a Door, Opening a Window

Although ZF Automotive draws a clear line with respect to private international arbitrations and investor-state arbitrations conducted through ad hoc tribunals, the statute as a whole remains exceedingly broad, limited only by discretionary factors. Those factors may nevertheless permit Section 1782 to be used in the very arbitrations that the Court now seeks to exclude.

As currently applied, Section 1782 allows discovery for use in a proceeding that is contemplated, before it is even filed, and regardless of whether the sought-after discovery is permitted under the rules of the foreign or international tribunal. In fact, 10% of all requests from interested parties seek discovery for contemplated proceedings. Although lower courts are directed to consider whether the tribunal at issue is receptive to U.S. discovery assistance, judges are typically constrained in their ability to conduct that analysis. Most requests are made ex parte and seek discovery from a third party who is poorly positioned to provide information about the foreign proceeding or the tribunal’s receptivity to U.S. discovery. Where discovery is sought for a proceeding that has not yet been initiated, that analysis is simply impossible.

Moreover, for requests from interested parties seeking discovery for use in multiple proceedings—these constitute nearly 30% of all requests from interested parties—lower courts often simplify the analysis by requiring just one of the proceedings to fulfill Section 1782’s statutory requirements. Thus, an interested person need only initiate another proceeding that falls within Section 1782’s ambit, or merely assert that she is contemplating doing so, in order to obtain Section 1782 discovery, which can then be used in an arbitration.

In the end, ZF Automotive does nothing to curb Section 1782’s broad construction and its reliance on judges to conduct unmanageable analyses. The decision therefore opens a window even as the Supreme Court closes the door to private international arbitration.