International Arbitration Update: Supreme Court Takes Opportunity to Revisit Circuit Split over Discovery in Aid of International Arbitration

On December 10, 2021, the United States Supreme Court granted certiorari in two cases—ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401, and AlixPartners, LLP v. Fund for Prot. of Investors’ Rights in Foreign States, No. 21-518—to determine whether the discretion granted to district courts under 28 U.S.C. § 1782 (“Section 1782”) to render assistance in gathering evidence for use in a “foreign or international tribunal” includes seeking evidence in aid of private commercial arbitrations or treaty-based arbitrations. The Court has consolidated the two cases and scheduled them to be argued together in the current term.

Section 1782 does not define what qualifies as a “foreign or international tribunal.” And federal courts are increasingly divided on whether the definition includes foreign-seated private commercial arbitral tribunals.[1] The U.S. Courts of Appeals for the Fourth and Sixth Circuits have held that a “foreign or international tribunal” encompasses private commercial arbitral tribunals. On the other hand, the U.S. Courts of Appeals for the Second, Fifth, and Seventh Circuits have concluded that the language excludes such tribunals.  Courts have generally agreed that a “foreign or international tribunal” includes a treaty-based arbitral tribunal.

This is the second time the Court has decided to take on the issue of what qualifies as a “foreign or international tribunal.”  The Supreme Court granted cert to address this question in Servotronics, Inc. v. Rolls-Royce PLC, No. 20-794. But the parties dismissed that Supreme Court case six days before the scheduled argument.

Because the uncertainty regarding Section 1782 continues to loom large, the dismissal of the Servotronics case was disappointing to many in the international arbitration community. But the Supreme Court now has a second chance to resolve the circuit split on this important issue. 

Section 1782 Discovery

Section 1782 empowers federal district courts to grant applicants the authority to issue subpoenas in the United States to obtain documents and/or testimony in aid of foreign proceedings. Specifically, an applicant pursuing Section 1782 discovery must establish that:

a) the discovery is for use in an actual or contemplated proceeding before a “foreign or international tribunal”;

b) the applicant is an “interested person” in that proceeding; and

c) the person from whom the discovery is sought resides or is otherwise found in the district of the court where the application is filed.[2]

If the applicant satisfies all of these statutory requirements, a district court has the discretion to grant or deny the application after considering the following factors established by the U.S. Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc.:

a) whether the discovery sought is within the foreign tribunal’s jurisdictional reach and, thus, accessible without resort to Section 1782;

b) the nature of the foreign tribunal, the character of the proceedings abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal court judicial assistance;

c) whether the applicant’s request conceals an attempt to circumvent foreign proof‑gathering restrictions or other policies of a foreign country or the United States; and

d) whether the request is unduly intrusive or burdensome.[3]

The relevant issue for parties to an international arbitration proceeding seeking U.S. discovery is whether a private commercial arbitration outside the United States qualifies as a proceeding before a “foreign or international tribunal” within the meaning of Section 1782.[4] The statute’s failure to define those terms and disagreement regarding the correct interpretation is the source of the current 3–2 circuit split.

Servotronics, Inc. and the Circuit Split

In Servotronics, Inc. v. Boeing Co., the Fourth Circuit permitted Section 1782 discovery in aid of a foreign‑seated private commercial arbitration,[5]relying on a Sixth Circuit case, also so holding,[6] with approval and reached the same result. The Fourth Circuit considered whether a party to a private arbitration in the United Kingdom could obtain testimony from residents of South Carolina for use in the arbitration.[7] The Fourth Circuit also adopted the Sixth Circuit’s holding that district courts remain empowered with wide discretion to administer and manage the discovery process so as to avoid unduly burdening the target of discovery.[8]

Despite its success in the Fourth Circuit, Servotronics faced an opposite outcome in the Seventh Circuit. In a sister case arising from the same underling arbitration, the Seventh Circuit blocked Servotronics from obtaining testimony from residents of Illinois under Section 1782.[9] With this decision, the Seventh Circuit joined the Second and Fifth Circuits in concluding that Section 1782 does not authorize discovery for use in private foreign arbitrations.[10]

With the Fourth and Sixth Circuits on one side, the Second, Fifth, and Seventh Circuits on the other, and with Servotronics squarely in the middle of the circuit split, the Supreme Court granted certiorari in Servotronics on March 22, 2021, to clarify this hotly debated question. But because the underlying arbitration concluded, the parties dismissed their case before the Supreme Court had a chance to resolve the matter.

ZF Automotive and AlixPartners

In ZF Automotive, Luxshare, a party to private international arbitration, obtained an order from the U.S. District Court for the Eastern District of Michigan granting limited discovery from ZF Automotive under Section 1782.[11] ZF Automotive then filed a petition for a writ of certiorari seeking reversal of the district court’s order.

AlixPartners is somewhat different because the underlying arbitration between a foreign state and an investor is in a treaty-based tribunal. In AlixPartners, the Fund for Protection of Investor Rights in Foreign States (the “Fund”) commenced an international arbitration against Lithuania, pursuant to a bilateral investment treaty between Russia and Lithuania.[12] The bilateral treaty stipulates that an investor, who has a claim against a state that is a party to the treaty, may bring the dispute before “an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law.”[13] The Fund subsequently filed a Section 1782 application seeking leave to obtain discovery from AlixPartners, among others, to be used in the international arbitration proceeding.[14] The U.S. District Court for the Southern District of New York granted the Fund’s application after finding that all three of the statutory requirements of Section 1782 were met and the Intel factors favor granting the Fund’s request for discovery.[15]

On appeal, AlixPartners argued that Section 1782’s “proceeding in a foreign or international tribunal” does not extend to the arbitration between the Fund and Lithuania, which it characterized as a private commercial arbitration.[16] In answering the question of whether the tribunal is private, the Second Circuit applied factors it laid out in Guo:

a) the “degree of state affiliation and functional independence possessed by the entity”;

b) the “degree to which a state possesses the authority to intervene to alter the outcome of an arbitration after the panel has rendered a decision”;

c) the “nature of the jurisdiction possessed by the panel”; and

d) the “ability of the parties to select their own arbitrators.”[17]

First, the Second Circuit found that the arbitral panel is convened pursuant to the terms of the treaty and thus retains affiliation with the foreign states.[18] Second, the Second Circuit concluded that the second factor is neutral because while an arbitration against a foreign state requires the foreign state’s consent, the purpose of a bilateral investment treaty would be frustrated if a foreign state could intervene or control the arbitration’s outcome.[19] Third, the Second Circuit noted Guo’s observation that an “arbitral body under a bilateral investment treaty may be a ‘foreign or international tribunal.’”[20] Fourth, the Second Circuit once again referred to Guo’s reasoning that while selecting arbitrators who are private parties is suggestive of a “private” arbitration, this factor is not determinative.[21]

As additional evidence that the arbitral panel is a “foreign or international tribunal” rather than a “private arbitral body,” the Second Circuit pointed to the importance of “bilateral investment treaties as tools of international relations” and the fact that Lithuania, in its capacity as a foreign state, is one of the parties to the arbitration at issue.[22] Determining that the arbitration between the Fund and Lithuania is a “proceeding in a foreign or international tribunal” under Section 1782, the Second Circuit affirmed the district court’s order granting discovery.[23]

Subsequently, AlixPartners petitioned for a writ of certiorari. AlixPartners asserts that even if the arbitration involves a foreign state as a party, the parties still seek to resolve a commercial dispute, and that the arbitral panel does not exercise any governmental or quasi-governmental authority. 

Pending Supreme Court’s Review

ZF Automotive presents the same issue that the Supreme Court did not have a chance to answer in Servotronics: whether Section 1782 can be invoked by parties in private commercial arbitration to obtain U.S.-style discovery. But AlixPartners asks a different question: whether an ad hoc arbitral panel constituted pursuant to a bilateral investment treaty to resolve a commercial dispute between a private party and a foreign state is a “foreign or international tribunal” within the meaning of Section 1782.

By taking on both ZF Automotive and AlixPartners, the Supreme Court has the opportunity to define the full scope of Section 1782 for both private and treaty-based international arbitrations. Decisions in these cases are expected before the Court breaks for its summer recess in July.   

[1] As of this writing, the Third, Ninth, and Eleventh Circuits have cases pending on this very issue.  See, e.g., HRC-Hainan Holding Co., LLC v. Yihan Hu, No. 19-mc-80277-TSH, 2020 U.S. Dist. LEXIS 32125, at *2 (N.D. Cal. Feb. 25, 2020), appeal filed sub nom. In re: Application of HRC-Hainan Holding Co., LLC, No. 20-15371 (9th Cir. Feb. 28, 2020); In re EWE Gasspeicher GmbH, No. CV 19-MC-109-RGA, 2020 WL 1272612 (D. Del. Mar. 17, 2020), appeal filed sub nom. In re: Application of EWE Gasspeicher GmbH, No. 20-01830 (3d Cir. May 8, 2020); In re Rendon, No. 1:20-mc-21152-KMM (S.D. Fla.), appeal filed sub nom. Rendon v. Abbott Lab’ys., No. 21-10754 (11th Cir. Mar. 5, 2021).

[2] 28 U.S.C. § 1782(a).

[3] 542 U.S. 241, 264–65 (2004) (internal quotations and citations omitted).

[4] It is also possible for international parties to seat their arbitrations inside the United States. Some commentators have argued that such proceedings should be considered proceedings “in an international tribunal” for purposes of Section 1782. See, e.g., Hans Smit, American Assistance to Litigation in Foreign and International Tribunals: Section 1782 of Title 28 of the U.S.C. Revisited, 25 Syracuse J. Int’l L. & Com. 1, 5 (1998) (“a tribunal is international in the sense of Section 1782 when any of the parties before it, or any of the arbitrators, is not a citizen or resident of the United States.”). At least one court has considered this issue but declined to decide it after holding more generally that private arbitrations are not covered under Section 1782. See In re Dubey, 949 F. Supp. 2d 990 (C.D. Cal. 2013).

[5] 954 F.3d 209 (4th Cir. 2020). For a more in-depth discussion of the case, our prior client alert.

[6] Abdul Latif Jameel Transp. Co. Ltd. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019). For a more in-depth discussion of the case, our prior client alert.

[7] Boeing, 954 F.3d at 210.

[8] Id. at 215.

[9] Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689, 690–91 (7th Cir. 2020).

[10] Id. at 696. For a more in-depth discussion of the case, our prior client alert.

[11] Luxshare, Ltd. v. ZF Automotive US, Inc., 15 F.4th 780, 782 (6th Cir. 2021).

[12] In re Fund for Prot. of Investor Rights in Foreign States, 19 Misc. 401 (AT), 2020 WL 3833457, at *1 (S.D.N.Y. July 8, 2020).

[13] Id.

[14] Id.

[15] Id. at 2–4.

[16] Fund for Prot. of Investor Rights in Foreign States v. AlixPartners, LLP, 5 F.4th 216, 224 (2d Cir. 2021).

[17] Guo v. Deutsche Bank Securities, Inc., 965 F.3d 96, 107–08 (2d Cir. 2020).

[18] Fund for Prot. of Investor Rights in Foreign States, 5 F.4th at 226–27.

[19] Id. at 227.

[20] Id.

[21] Id. at 227–28.

[22] Id. at 228.

[23] Id. at 233.