June 16, 2022

U.S. Supreme Court Curtails Discovery in International Arbitration

The U.S. Supreme Court has ruled in the case of ZF Automotive US v. Luxshare that parties to private foreign or international arbitrations may not seek discovery assistance from U.S. federal courts for use in their arbitration proceedings abroad. In a unanimous opinion, the Court held that 28 U.S.C. § 1782 — which authorizes U.S. district courts to assist a “foreign or international tribunal” in taking testimony and producing documents — does not extend to private arbitral forums. The decision has significant implications for private, international commercial disputes.

The Court consolidated two cases in which parties to foreign arbitration proceedings challenged district court rulings authorizing court-assisted discovery. One case arose from a private foreign arbitral body and the other from an ad hoc tribunal established pursuant to a treaty between two nations. Both cases centered on whether a private arbitral tribunal qualified as a “foreign or international tribunal” within the meaning of § 1782.

Section 1782(a) provides that:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.

Prior to the Court’s decision, the federal circuit courts were split as to whether the phrase “foreign or international tribunal” encompassed private international arbitral tribunals. For example, in Servotronics, Inc. v. Boeing Co., the Fourth Circuit ruled that a private arbitral panel in the United Kingdom was a “foreign or international tribunal,” while the Seventh Circuit in Servotronics, Inc. v. Rolls-Royce PLC, joined the Second and Fifth Circuits in refusing to authorize a district court to compel discovery for use in a private foreign arbitration.

In resolving the split, the Court traced the history of § 1782 and parsed the statutory language to conclude that “only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U.S.C. § 1782.” The Court reasoned that the word “‘tribunal’ does not itself exclude private adjudicatory bodies,” but when coupled with “foreign or international,” the phrase connotes a “more governmental meaning.” Thus, the phrase “foreign or international tribunals,” according to the Court, more naturally refers to a tribunal imbued with governmental power to adjudicate disputes.

The Court also found further support for its interpretation by examining the Federal Arbitration Act (FAA). In reviewing the FAA, the Court noted that if § 1782 were to extend to private international arbitrations, parties to international arbitrations would be able to obtain broader discovery from federal courts than parties in domestic arbitrations.

Notably, the Court’s ruling extends to investor-state dispute settlement proceedings conducted under the auspices of an ad hoc tribunal. Thus, even when a sovereign government submits to international arbitration, the federal courts may not be able to assist with discovery under § 1782.

This case will materially weaken, if not eliminate, the ability of parties to seek American-style discovery to prosecute or defend a private international arbitration. This decision will be welcome news to some businesses — those who contracted for arbitration in order to avoid the broad and drawn-out discovery that often plagues court proceedings. Parties seeking additional discovery will want to critically review and avail themselves of the discovery mechanisms found within the governing rules of the arbitral bodies before which they appear.

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