ZF Automotive: Predictable Outcome, Lackluster Reasoning

Whatever one may think of it, the Court’s decision in ZF Automotive US, Inc. v. Luxshare, Ltd. is not a surprise. It reflects the forceful intervention of the U.S. Government and aligns well with the drift of the Court’s conduct of oral argument in the case. Even the constituency most apt to want to use 28 U.S.C. § 1782 in international arbitration – the international arbitration community – was in fact divided over the matter. For some members of that community, greater access to evidence located in the United States necessarily enhances the efficacy of arbitration elsewhere. But many others look deeply askance at the intrusion by the U.S. judiciary into arbitral proceedings and the authority of tribunals to conduct the arbitration. (Disclosure: I joined an amicus brief arguing that Section 1782 should apply to both international commercial and investor-state arbitration.)

To be expected in the opinion was the Court’s emphasis on “context” and its unhappiness that discovery in aid of international arbitration under Section 1782 is measurably broader than discovery in domestic arbitration under the Federal Arbitration Act.

On the other hand, the Court handled quite poorly one of the strongest arguments in favor of making Section 1782 applicable to international arbitration, namely the statutory language and its “plain meaning.” The Court tells us that when the term “tribunal” stands alone, it readily includes private adjudicatory bodies, but when it is accompanied by the modifiers “foreign” or “international” it must be understood “as an adjudicative body that exercises governmental authority.” Why is that? Admittedly, one may wonder whether the term “foreign” connotes international arbitration. After all, at least in ordinary usage, a tribunal is capable of being “international” even if it sits in the United States, provided the dispute is somewhat international by nature. But the Court’s treatment of the modifier “international” is regrettably truncated. Justice Barrett finds two definitions of “international” in the Random House Dictionary. She embraces the first (“between or among nations”) while rejecting the second (“of or pertaining to two or more nations or their citizens”). Evidently, a tribunal cannot be “international” unless it implicates States. To drive home the point, the Court reasoned that a tribunal cannot be international unless “nations have imbued the tribunal with official power to adjudicate” (emphasis added).

But why must “international” mean “intergovernmental”?  To so hold means, in effect, that the only species of international law deserving of that name is public international law. Private international law simply does not qualify. The Court reasoned:

So understood, “foreign tribunal” and “international tribunal” complement one another; the former is a tribunal imbued with governmental authority by one nation, and the latter is a tribunal imbued with governmental authority by multiple nations. (Emphasis added)

And yet, when the term “international tribunal” is used, international arbitral tribunals (including ones adjudicating purely private disputes) are among those that leap most immediately to mind.

Nor is it convincing to posit, as Justice Barrett does, that “the animating purpose of §1782 is comity.” In her view, the only purpose of Section 1782 was to show consideration and respect to foreign States. That is a questionable proposition. It is far from clear that, in extending the benefits of Section 1782 to litigants in foreign courts or tribunals, one is mostly showing consideration to foreign courts, as opposed to litigants in foreign courts. Put differently, does Section 1782 only “assist foreign and international governmental bodies,” and not private parties (including the litigants) “interested” in the proceedings before those bodies? “It is difficult,” the Court says, to see how enlisting district courts to help private bodies would serve comity. But why must making Section 1782 available to litigants before international tribunals be viewed as an exercise in comity? Justice Barrett finds it essentially unthinkable that Congress would “lend the resources of district courts to aid purely private bodies adjudicating purely private disputes abroad[.]” It is not unthinkable.

The dispute between ZF Automotive US, Inc. and Luxshare, Ltd. was clearly private under the Court’s test, but it remained for the Court to determine whether the dispute between AB bankas SNORAS and Lithuania could be characterized as governmental. Justice Barrett acknowledges that, in the latter case, “[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.” But for the Court, more is required. It is not enough that the dispute arose under an international investment treaty between Russia and Lithuania, an instrument that is indisputably “governmental.” Those States must have “intend[ed] to confer governmental authority” on the tribunal. Evidently “governmental” is not enough; what is needed is the exercise of “governmental authority.” Why this should be so is unexplained. Of course, international investment tribunals do not exercise governmental authority, but must they do so? They do stand in judgment of State measures taken pursuant to governmental authority, pursuant to treaties between sovereign States over disputes to which a State is necessarily a party.

The position taken by the Court in these cases is by no means irrational. It is readily defensible in light of the Court’s concern that discovery in aid of international arbitration should not be greater than that available to domestic litigants. But it is not reasoned as well as it could and should have been.