ZF Automotive US, Inc. v. Luxshare, Ltd

Issues

Does 28 U.S.C. § 1782, which authorizes federal district courts to order discovery “for use in a foreign or international tribunal,” apply to foreign or international private commercial arbitral tribunals?

Oral argument:

March 23, 2022

Court below:

United States Court of Appeals for the Second Circuit

This case asks the Supreme Court to decide whether a private commercial arbitral tribunal is a “foreign or international tribunal” for purposes of 28 U.S.C. § 1782, a federal law that governs international judicial assistance. International judicial assistance refers to aid provided by one sovereign government to another in judicial proceedings. In ZF Automotive US, Inc. v. Luxshare, Ltd, Petitioner ZF Automotive US, Inc. contends that, based on the plain meaning and legislative history of § 1782, it does not apply to private commercial arbitral tribunals located in foreign nations. Respondent Luxshare, Ltd. counters that the dictionary definitions and legal use of the terms “foreign” and “tribunal” show that the statute does apply to private commercial arbitration. In AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States, Petitioner AlixPartners, LLC argues that its arbitral panel does not qualify under § 1782 simply due to the international nature of the parties or the dispute because that does not turn the panel itself into an “international tribunal.” Respondent Fund for Protection of Investors’ Rights in Foreign States counters that the arbitral panel does constitute an international tribunal because it is resolving a dispute over whether one country violated its obligations under a treaty. These cases implicate the fair and efficient resolution of arbitral disputes, party autonomy, and international comity.

Questions as Framed for the Court by the Parties

ZF Automotive US, Inc. v. Luxshare, Ltd.

Whether 28 U.S.C. § 1782, which permits litigants to invoke the authority of United States courts to render assistance in gathering evidence for use in “a foreign or international tribunal,” encompasses private commercial arbitral tribunals, as the U.S. Courts of Appeals for the 4th and 6th Circuits have held, or excludes such tribunals, as the U.S. Courts of Appeals for the 2nd, 5th and 7th Circuits have held.

AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States

Whether the phrase “international tribunal” in 28 U.S.C. § 1782 excludes an international arbitral tribunal constituted pursuant to a treaty signed by two sovereign States and charged with the authority to adjudicate with finality whether one of the two sovereigns breached its obligations under the treaty.

Facts

ZF Automotive US, Inc. v. Luxshare, Ltd.

Luxshare Ltd. (“Luxshare”) purchased business units from ZF Automotive US, Inc. (“ZF”) for approximately $1 billion. Luxshare, Ltd. v. ZF Automotive US, Inc., at *2. The purchase agreement stated that all disputes would be settled via arbitration in Germany under the rules of the German Institution of Arbitration (“DIS”), a private arbitration body. Id. at *3. Brief for the Petitioner, ZF US at 10. Approximately two years after the deal closed, Luxshare alleged that ZF had fraudulently concealed materially relevant circumstances and thus Luxshare intended to bring a claim before the DIS arbitration tribunal to recover its losses. Luxshare, Ltd. v. ZF Automotive US, Inc., at *3.

Luxshare then filed an ex parte application in the United States District Court for the Eastern District of Michigan to compel discovery testimony from two senior ZF officers for use in the arbitration. Id. at *4. Luxshare filed its application under 28 U.S.C. § 1782, a statute providing district courts with the ability to compel discovery for use in a “foreign or international tribunal.” Id. The district court granted the application, and Luxshare subpoenaed the officers. Id. ZF then moved to quash the subpoenas, arguing that the arbitral panel did not constitute a “foreign or international tribunal” under § 1782. Id. Brief for ZF US at 12. The court granted the motion in part and authorized limited discovery. Luxshare, Ltd. v. ZF Automotive US, Inc., at *4. ZF then appealed to the United States Court of Appeals for the Sixth Circuit, asking for a stay of the district court’s discovery order. Id. at *2.

While this case was pending before the Sixth Circuit, the petitioners in Servotronics Inc. v. Rolls-Royce PLC. informed the Supreme Court of the United States that they intended to dismiss their case. Brief for the Petitioner, ZF US at 13. As Servotronics involved similar foreign arbitration between large corporations and asked the Supreme Court to decide whether a foreign private commercial arbitral panel constituted a “foreign or international tribunal” under § 1782, ZF petitioned the Supreme Court to grant certiorari before the judgment in order to address the same question. Id.

AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States

The Snoras bank was nationalized by the central bank in Lithuania. Fund for Prot. of Investor Rights v. AlixPartners, at *221. The Fund for Protection of Investor Rights in Foreign States (the “Fund”), a Russian corporation, then sought compensation from Lithuania for the expropriation of its controlling share in Snoras. Id. The Fund commenced ad hoc arbitration proceedings pursuant to the terms of a bilateral investment treaty between Russia and Lithuania. Id. at *221–22. The Fund then sought discovery from the bank’s temporary administrator through AlixPartners, LLC for use in the arbitration. Id. at *221. The District Court for the Southern District of New York granted its request. Id. at *223. AlixPartners appealed, arguing that private commercial arbitration was not subject to § 1782. Id. at *224. The United States Court of Appeals for the Second Circuit disagreed, holding that an arbitration convened pursuant to a treaty qualified as a “proceeding in a foreign or international tribunal,” and thus the district court could order discovery. Id. at *228–29.

Consolidated Cases

The Supreme Court of the United States granted certiorari and consolidated both cases on December 10, 2021. Brief for the Petitioner, ZF US at 13.

Analysis

PRIVATE ARBITRAL PANELS AS FOREIGN TRIBUNALS UNDER §1782

Petitioners ZF Automotive US, Inc., Gerald Dekker, and Christophe Marnat (collectively “ZF”) argue that the reference in 28 U.S.C. § 1782 to “foreign . . . tribunal[s]” does not permit a U.S. district court to compel discovery for use in proceedings in foreign private commercial arbitral panels. Brief for the Petitioner, ZF US at 13–14. ZF stresses that the text, plain meaning, use, and history of § 1782 all indicate that Congress intended § 1782 to only authorize discovery assistance for judicial or quasi-judicial bodies linked to foreign governments or international agreements. Id. at 17. Using ordinary dictionary definitions in 1964 (the year Congress amended § 1782), ZF first contends that “foreign tribunal” meant foreign governmental adjudicatory body, which excludes purely private arbitral panels such as the DIS one here. Id. at 18–19. ZF further asserts that Congress consistently uses “tribunal” to refer exclusively to courts, whereas it describes private arbitrations as “proceedings.” Id. at 22–23. ZF argues that this linguistic difference demonstrates Congress’ intent to exclude private arbitral arrangements from discovery assistance under § 1782. See id. at 22. ZF contends that this distinctive language is mirrored by other authorities, including legal scholars, executive branch officials, and the judicial doctrines like forum non conveniens, making it illogical to collapse those distinctions in § 1782. Id. at 24, 27–30.

ZF further contends that the legislative history of § 1782 highlights that Congress intended to promote international comity with regards to foreign nations and intergovernmental dispute resolution bodies—a purpose which would not include private arbitral panels. Id. at 31. Looking at the historical context, ZF argues that Congress’ skepticism of foreign private arbitration proves that Congress would have never intended to privilege such proceedings by granting them access to the powerful mechanism of discovery assistance under § 1782. Id. at 37–41. Furthermore, ZF points out that it is unlikely that Congress would have intended to give foreign private arbitral panels such a powerful tool when there is no parallel process under the Federal Arbitration Act to compel discovery in domestic arbitrations. Id. at 38–40. ZF emphasizes that the DIS arbitration derives its authority from a private contract between two private corporations and will be conducted entirely by private arbitrators according to the rules of a private commercial arbitration institution, and thus it should be beyond the scope of § 1782. Id. at 17.

While Respondent Luxshare agrees that it is proper to start with the text, plain meaning, use, and history of § 1782, Luxshare counters that this reveals that foreign private commercial arbitral panels are within the scope of the statute. Brief for the Respondent, Luxshare at 12. Using ordinary dictionaries, Luxshare argues that an arbitral panel located in another country is considered to be “foreign” as that term has always been ordinarily understood. Id. In particular, Luxshare contends that even though a foreign-based private arbitral tribunal may not be officially controlled by a state entity, it nonetheless is seated in a foreign nation and must comply with that country’s jurisdiction and laws—including the laws which govern the arbitral panel’s internal procedures and the interactions between the arbitration and the country’s judicial system. Id. at 12–13. In this case, Luxshare highlights that German law would require the DIS panel to comply with requirements such as equal treatment and due process, despite being a private institution. Id. at 13. Furthermore, Luxshare asserts that commercial arbitration tribunals’ rulings are final, binding, enforceable, and subject to review by courts. Id. at 20. For these reasons, Luxshare contends that dictionaries, courts (including the Supreme Court), intergovernmental bodies, commentators, and international commercial arbitration practitioners have all referred to commercial arbitration panels as “tribunals,” and therefore excluding them from the definition of “tribunal” under § 1782 would be unreasonable. Id. at 14–15.

Luxshare additionally contends that, contrary to ZF’s historical summary, there is no evidence that Congress ever disfavored foreign commercial arbitration or was only concerned about comity in the governmental context. Id. at 16, 32–34. More broadly, Luxshare argues that § 1782’s scope should not be artificially frozen by attempting to read in congressional intent—rather, the Supreme Court should look to the generalized language of the statute. Id. at 17–18. Luxshare highlights that Congress specifically broadened the language of § 1782 in its 1964 amendment; the provision only permitted compelling discovery for use in “judicial proceedings” in a “court in a foreign country,” but Congress changed it to the current, more expansive version that permits compelling discovery for use in proceedings in front of a “foreign or international tribunal.” Id. at 19. Therefore, Luxshare contends that even though DIS is a private arbitral panel, its proceeding nonetheless is a binding dispute mechanism located in a foreign country that falls within the plain, historical, and textual meaning of “foreign tribunal” under § 1782.

ARBITRATIONS PURSUANT TO INTERNATIONAL TREATIES AS INTERNATIONAL TRIBUNALS UNDER §1782

Similar to ZF, Petitioners AlixPartners, LLP and Simon Freakley (collectively “AlixPartners”) contend that the reference to “international tribunal” in § 1782 does not grant a U.S. district court the authority to compel discovery for use in an ad hoc arbitration proceeding conducted in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). Brief for the Petitioner, AlixPartners at 17–18. AlixPartners argues that mere facts that one of the parties is a state actor and that both parties consented to the arbitration via an international bilateral investment treaty do not transform the arbitration panel itself into an “international tribunal.” Id. Furthermore, AlixPartners contends that the term “international tribunal” is tied only to governmental institutions. Id. at 19–20. AlixPartners argues that in modifying § 1782, Congress sought to change “existing practices of judicial assistance and cooperation with foreign countries,” thereby demonstrating that the purpose of § 1782 was to enhance foreign judicial relationships between governments, not between the United States and private entities. Id. at 24. Here, AlixPartners asserts that the arbitral panel is a purely private entity which can only adjudicate the dispute because of the parties’ consent to the arbitration, as it lacks any governmental control or oversight. Id. at 24, 30. As such, AlixPartners argues that the arbitral panel falls outside the scope of §1782. Id. At 19–20.

Respondent The Fund for Protection of Investors’ Rights in Foreign States (“the Fund”) counters that an ad hoc arbitration proceeding, created via a bilateral investment treaty and conducted according to UNCITRAL’s arbitration rules, does fall within the scope of the term “international tribunal” in § 1782. Brief for the Respondent, the Fund at 12. The Fund asserts that unlike the wholly private foreign commercial arbitral panel in ZF Automotive US, Inc. v. Luxshare, Inc., this arbitral panel is fundamentally international in character because it was created under an international treaty to resolve a dispute involving at least one state actor. Id. The Fund highlights that the dispute in front of the panel revolves around whether Lithuania breached its treaty-mandated obligations to Russia. Id. The Fund contends that the dispute between the parties is not purely commercial—rather, any cases referred to the arbitral panel concern whether a state has violated its treaty obligations to protect the investments of the other state’s nationals. Id. at 15. As such, the Fund argues that the arbitration tribunal falls neatly into § 1782’s “international tribunal” classification based both on the subject matter of its adjudications and the fact that the panel derives its authority from an international source: the treaty itself. Id. at 15–17.

Discussion

EFFICIENCY AND FAIRNESS

Dr. Xu Guojian and several other experienced Chinese arbitrators (“the Arbitrators”), in support of ZF, argue that § 1782 should not apply to private arbitration because it would undermine efficiency and fairness. Brief of Amicus Curiae Dr. Xu Guojian et al. (“The Arbitrators”) in Support of Petitioner at 8–9. The Arbitrators explain that broadening discovery, particularly by allowing third party discovery, would cause delays and drive up costs. Id. at 13, 15. The Arbitrators warn that § 1782 discovery might incentivize parties to engage in “fishing expeditions” to harass parties with fewer financial resources. Id. at 12–13, 15. The Arbitrators also caution that collateral discovery under § 1782 would disproportionately burden U.S. courts relative to their foreign counterparts. Id. at 14–15. ZF explains that federal district courts are already inundated with § 1782 litigation due to recent increases in cross-border activity. Brief for Petitioner, ZF Automotive US Inc. at 46. Noting the dramatic rise in overseas private arbitrations since the 1960s, ZF warns that requiring courts to process § 1782 petitions would divert federal district courts’ limited time and resources to foreign proceedings with minimal connection to the United States. Brief for Petitioner at 45–46. The Chamber of Commerce, in support of ZF, also cautions that § 1782 will impose lopsided burdens on U.S.-based companies because the statute does not require foreign jurisdictions to reciprocate discovery. Brief of Amicus Curiae Chamber of Commerce, in Support of Petitioner at 14, 18.

Professor Tamar Meshel and several other foreign scholars (“the Professors”), in support of Luxshare, contend that § 1782 discovery does not undermine efficiency and fairness because a tribunal can exercise its discretion to refuse to delay proceedings to accommodate requests under § 1782, thereby safeguarding against possible abuse. Brief of Amicus Curiae Professors Tamar Meshel et al. (“the Professors”) in Support of Respondent at 14–16. The Professors add that since the rules of arbitration do not authorize third party discovery, § 1782 discovery can ensure fairness by allowing parties to generate a comprehensive evidentiary record. Id. at 16. With regards to overburdening courts and U.S.-based companies, the Professors explain that these concerns are exaggerated because courts can exercise their discretion to refuse “unduly intrusive or burdensome requests.” Id. at 20. Additionally, Luxshare asserts that requiring courts to determine whether § 1782 applies would require a burdensome investigation because there is no clear line for distinguishing governmental/state-sponsored arbitration from private arbitration. Brief for Respondent, Luxshare at 36. Finally, Luxshare notes that federal courts may condition U.S. assistance on reciprocal discovery, thus employing judicial discretion to also safeguard against asymmetrically burdening U.S. courts. Id. at 46.

RESPECTING PARTY AUTONOMY AND INTERNATIONAL COMITY

The Arbitrators, in support of ZF, point out that parties choose arbitration over litigation to resolve their disputes partly because of the choice and flexibility afforded to parties to determine their own procedures—an autonomy that is threatened by § 1782 discovery. Brief of The Arbitrators at 9. The Arbitrators explain that § 1782 is inconsistent with party autonomy because it allows ex parte discovery applications to be submitted by opponents and third parties without notice. Id. at 15. The Chamber of Commerce, in support of ZF, emphasizes that arbitration is based in contract law and that permitting petitions without notice fundamentally contradicts the principle of mutual consent at the heart of contract law. Brief of Chamber of Commerce at 17. The Arbitrators emphasize that the parties chose arbitration with the knowledge that the breadth of discovery would be limited; the Arbitrators therefore contend that this choice should be respected by barring § 1782 discovery. Brief of The Arbitrators at 11.

In opposition, the Professors, in support of Luxshare, argue that party autonomy is not undermined because parties can contract out of applying § 1782. Brief of The Professors at 17. The Professors contend that rather than respecting party autonomy, a rule that bars § 1782 discovery entirely would prevent parties from exercising their autonomy and discretion in granting § 1782 requests. Id. Furthermore, the Professors explain that applying § 1782 to private arbitration would be consistent with the emerging global norm of providing such judicial assistance. Id. at 12. Additionally, Federal Arbitration Inc., (“FedArb”), in support of Luxshare, highlights that § 1782 was enacted by Congress with the goal of fostering international judicial cooperation and that Congress has broadened the statute’s scope over time. Brief of Amicus Curiae Federal Arbitration, Inc. (FedArb) in Support of Respondent at 3-4. Therefore, FedArb asserts that a rule that extends § 1782 to include private arbitration would likely be consistent with Congress’ pro-arbitration policy and intent. Id.