By George H. Friedman, SAA Publisher & Editor-in-Chief
The Supreme Court has decided ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401, ruling unanimously that 28 U.S.C. § 1782(a), which permits litigants to use American courts to obtain discovery in aid of “a foreign or international tribunal,” applies only to governmental fora and does not extend to private commercial arbitral tribunals.
We reported in December 2021 that the Supreme Court had granted Certiorari in four cases involving arbitration, among them ZF Automotive, which had been consolidated with AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518. We covered these in detail in SAA 2021-47 (Dec. 16) and in a feature article, After a Lull in 2021, a Busy Year Ahead Arbitration-wise for SCOTUS, 2021:48 Sec. Arb. Alert 1 (Dec. 23, 2021). We borrow from our past coverage to provide below a thumbnail sketch of the issues involved.
Cases Below: The Extent of the Discovery in Foreign Arbitrations
The September 2021 Petition in ZF Automotive asserts that the question before the Court:
“is substantively identical to the question presented in Servotronics, Inc. v. Rolls-Royce PLC, No. 20-794 (oral argument originally scheduled for Oct. 5, 2021; case removed from oral argument calendar Sept. 8, 2021): Whether 28 U.S.C. § 1782(a), 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 Fourth and Sixth Circuits have held, or excludes such tribunals, as the U.S. Courts of Appeals for the Second, Fifth, and Seventh Circuits have held.”
The October 5 Petition for Certiorari in AlixPartners, states:
“Whereas the arbitration in Servotronics was between two private parties, the arbitration here is between a private party and a foreign state -- an application of Section 1782 upon which the United States has expressed ‘particular concern.’ The question presented is: Whether an ad hoc arbitration to resolve a commercial dispute between two parties is a ‘foreign or international tribunal’ under 28 U.S.C. § 1782(a) where the arbitral panel does not exercise any governmental or quasi-governmental authority.”
The Oral Argument: Several Attorneys Involved
The oral argument took place March 23 with all Justices participating. Justice Thomas was out ill, but Chief Justice Roberts announced up front that he would: “participate in consideration and decision of the cases on the basis of the briefs and the transcripts of oral argument.” The transcript is here and the audio recording is here. As reported in SAA 2022-09 (Mar. 10), the Court’s February 28 Order List addressed oral argument time allocation: “the joint motion of the parties for divided argument and for enlargement of time for oral argument is granted. The motion of the Solicitor General for leave to participate in oral argument as amicus curiae, for divided argument, and for enlargement of time for oral argument is granted” (links added by the Alert). What were the specifics? The now-granted joint motion said:
“[T]he parties believe that the overall argument time should be expanded to 80 minutes, with each side receiving 40 minutes. In that scenario, the ZF and AlixPartners petitioners agree that ZF should receive 15 minutes of argument time, AlixPartners should receive 10 minutes of argument time, and the United States should receive 15 minutes of argument time. And the ZF and AlixPartners respondents agree that Luxshare and the Fund should each receive 20 minutes of argument time.”
The discussion here, with five attorneys presenting, consumed nearly two hours.
The Oral Argument: A Simpler Analysis
This argument to us was not nearly as esoteric as others of recent vintage, although the terms “comity” and “foreign tribunal” stole the spotlight. We concluded our analysis with a mild but prescient prediction: “The Court seems to be leaning against a more expansive application of section 1782 (just as asserted by the United States).” For a comprehensive “chapter-and-verse” analysis, we recommend that readers peruse the March 23 posts: 1) Supreme Court Hears Arguments on Whether Section 1782 Allows Discovery for Use Before International Arbitration Tribunals, offered in the CPR Blog on March 23; and 2) High Court Debates U.S. Discovery for Private Arbitration Abroad, appearing in Bloomberg Law.
Unanimous SCOTUS: Section 1782 Limited to Governmental Tribunals
The unanimous Opinion in ZF Automotive was authored by Justice Coney Barrett. In a clear, well-reasoned 17-page Opinion she writes:
“These consolidated cases require us to decide whether private adjudicatory bodies count as ‘foreign or international tribunals.’ They do not. The statute reaches only governmental or intergovernmental adjudicative bodies, and neither of the arbitral panels involved in these cases fits that bill…. In sum, we hold that §1782 requires a ‘foreign or international tribunal’ to be governmental or intergovernmental. Thus, a ‘foreign tribunal’ is one that exercises governmental authority conferred by a single nation, and an ‘international tribunal’ is one that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within §1782.”
In another Opinion citing general and law dictionaries, Justice Coney Barrett parses the verbiage in the statute and concludes that it, along with the Federal Arbitration Act (“FAA”), require a narrow application:
“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. Section 1782’s focus on governmental and intergovernmental tribunals is confirmed by both the statute’s history and a comparison to the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq. From the start, the statute has been about respecting foreign nations and the governmental and intergovernmental bodies they create.”
“Tension” with FAA
The Opinion also finds that a broader application of section 1872 would create a conflict with the FAA:
“Extending §1782 to include private bodies would also be in significant tension with the FAA, which governs domestic arbitration, because §1782 permits much broader discovery than the FAA allows…. [ed: see below for what we left out here]. Interpreting §1782 to reach private arbitration would therefore create a notable mismatch between foreign and domestic arbitration. And as the Seventh Circuit observed, ‘[i]t’s hard to conjure a rationale for giving parties to private foreign arbitrations such broad access to federal-court discovery assistance in the United States while precluding such discovery assistance for litigants in domestic arbitrations’” (citations omitted; brackets in original).
Involvement of Foreign Government As Party Makes No Difference
That AlixPartners involved a foreign government (Lithuania) as a party made for a more difficult analysis, but in the end it didn’t matter; the focus is to be on the tribunal:
“None of this forecloses the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority. Governmental and intergovernmental bodies may take many forms, and we do not attempt to prescribe how they should be structured. The point is only that a body does not possess governmental authority just because nations agree in a treaty to submit to arbitration before it. The relevant question is whether the nations intended that the ad hoc panel exercise governmental authority. And here, all indications are that they did not.”
The Bottom Line
“In sum, only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under §1782. Such bodies are those that exercise governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.”
Did SCOTUS Just Limit Discovery Under the FAA?
Over the years there have been conflicting lower court holdings on discovery in general under the FAA and prehearing discovery as well. Seems to us the Court in dicta just resolved some open issues. In the “tension with FAA” quote above, Justice Coney Barrett states matter-of-factly:
“[T]he FAA permits only the arbitration panel to request discovery, see 9 U. S. C. §7, while district courts can entertain §1782 requests from foreign or international tribunals or any ‘interested person,’ 28 U. S. C. §1782(a). In addition, prearbitration discovery is off the table under the FAA but broadly available under §1782” (emphasis added).
Seems pretty clear to us.
No ”Arbitration Quartet” but Maybe a “No Arbitration Quartet”?
We had in past coverage wondered out loud if SCOTUS was setting up another “Steelworkers Trilogy” scenario, in which the Court six decades ago simultaneously decided three landmark arbitration cases involving the United Steelworkers. The three cases, United Steelworkers v. American Manufacturing Co., 363 U.S. 564 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); and United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960), were all heard the same week (April 27-28, 1960), and the decisions were all announced seriatim on the same day (June 20, 1960). “Is SCOTUS planning a redux with the ‘Arbitration Quartet?’”, we mused. We thought we had our answer with the decision in Morgan v. Sundance Inc., No. 21-328, in that there would not be a simultaneous release of four arbitration-centric decisions. But there might be a different meaning. As our readers know, the Supreme Court on May 23 decided Morgan, ruling unanimously that there is no prejudice requirement under the FAA for a court to find a waiver of arbitration rights. Then the Court on June 6 decided Southwest Airlines Co. v. Saxon, No. 21-309, ruling unanimously that that the FAA section 1 exemption of “workers engaged in foreign or interstate commerce” includes classes of workers who are part of the flow or stream of interstate commerce, and that there is no FAA requirement that these individuals actually cross state lines. Thus far, the decisions in Sundance, Southwest, and ZF Automotive have limited the reach of arbitration under the FAA. Left to be decided is Viking River Cruises, Inc. v. Moriana, No. 20-1573 (FAA preemption of California’s PAGA). Perhaps we will end up with four “no arbitration” rulings? It’s starting to look like it, but time will tell.
(ed: *For an excellent analysis of this decision, see Supreme Court Bars Discovery Assistance for Private Overseas Arbitration Panels Under U.S. Law and More on Section 1782: Why the U.S. Supreme Court Says the Law Doesn’t Permit Discovery Requests from International Arbitrations, both in the June 13 CPR Blog.)