This Report summarizes opinions issued on June 13, 2022 (Part I).
Opinion: ZF Automotive US, Inc. v. Luxshare, Ltd., 21-401
ZF Automotive US, Inc. v. Luxshare, Ltd., 21-401. The Court unanimously held that 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”―“reaches only governmental or intergovernmental adjudicative bodies,” and thus does not reach “private adjudicatory bodies.” The decision addressed two consolidated cases. The first, ZF Automotive US, Inc. v. Luxshare, Ltd., involved a dispute between ZF, a Michigan-based auto parts manufacturer and subsidiary of a German corporation, and Hong Kong-based company, Luxshare. Luxshare bought “business units” from ZF but later claimed that ZF concealed information that led Luxshare to overpay. Per the terms of their agreement, the matter was referred to a private dispute resolution service in Germany. In preparation for the arbitration, Luxshare invoked §1782 to obtain subpoenas from the district court seeking information about ZF and its executives. ZF moved to quash the subpoenas on the ground that the foreign arbitration panel is not a “foreign or international tribunal” under § 1782. The district court denied the motion and ordered ZF to produce the requested information. The Sixth Circuit denied ZF’s request for a stay.
The second case, AlixPartners, LLP v. The Fund for Protection of Investors’ Rights in Foreign States, involved a clash between a bankrupt Lithuanian bank and a Russian investor who claimed that Lithuania had expropriated certain investments from the bank. The investor’s assignee (the Fund) initiated arbitration proceedings against the bank administrator and his company (collectively, AlixPartners) pursuant to an investment treaty between Lithuania and Russia that outlines procedures for resolving investment disputes between the countries and foreign investors. Among the approved forums, the Fund selected an ad hoc arbitration panel consisting of arbitrators to be selected by the parties. The Fund used §1782 to request discovery subpoenas from the district court, to which AlixPartners objected on the ground that the ad hoc arbitration panel is not a “foreign or international tribunal” under §1782. The district court granted the discovery request and issued the subpoenas. The Second Circuit affirmed after looking more closely at whether the private ad hoc panel qualified under §1782 as a “foreign or international” tribunal. In an opinion by Justice Barrett, the Court reversed in both cases.
The Court framed its analysis of the two cases by asking “whether the phrase ‘foreign or international tribunal’ in §1782 includes private adjudicative bodies or only governmental or intergovernmental bodies.” If yes, then §1782 permits discovery. If not, the Court would assess whether the arbitration panels here “qualif[ied] as governmental or governmental bodies.” In analyzing the word “tribunal,” the Court considered dictionary definitions and a prior version of the statute, and decided that “a §1782 ‘tribunal’ need not be a formal ‘court.’” But, found the Court, when modified by the words “foreign or international,” ”tribunal” “is best understood as an adjudicative body that exercises governmental authority.” The Court also looked at the “statutory defaults for discovery procedure,” which “reinforced” the Court’s “reading of ‘foreign tribunal.’” Specifically, §1782 authorizes district courts to “’prescribe the practice and procedure’” for discovery, in whole or in part, under the rules of the foreign country or international tribunal. The Court reasoned that the “foreign tribunal” contemplated by §1782 will follow the practice and procedure of the foreign country, but it would be “an odd assumption to make about a private adjudicatory body, which is typically the creature of an agreement between the private parties who prescribe their own rules.” Next, the Court analyzed §1782’s history and compared the statute with the Federal Arbitration Act (FAA). The Court found a spirit of wanting to increase assistance to and cooperation with foreign governments, which “encourages reciprocal assistance.” The Court also found it “difficult to see how enlisting district courts to help private bodies would serve that end.” In addition, the Court determined that “[e]xtending §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.”
Turning to the private arbitral panels in the consolidated matters, the Court dispensed quickly with the version presented in the ZF case. The matter involved “private parties” that agreed in a “private contract” to resolve their conflict by using a “private dispute-resolution organization” that would “operate under private arbitral rules.” As summed up by the Court, “[n]o government is involved in creating the . . . panel or prescribing its procedures. This adjudicative body therefore does not qualify as a government body.”
The ad hoc arbitration panel in AlixPartners “present[ed] a harder question” because “[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.” The Court decided to examine the substance of the countries’ agreement and whether they “intend[ed] to confer governmental authority on an ad hoc panel formed pursuant to the treaty.” Looking for indicia of a governmental nature, the Court found it relevant that “the treaty does not create the panel” and that “the ad hoc panel ‘functions independently’ of and is not affiliated with ether Lithuania or Russia.” (Citation omitted.) In addition, the panel lacks official affiliation with the countries or any (inter)governmental entity, there is no governmental funding, the proceedings are confidential, and awards are not made public without consent from both parties. Thus, the Court found the ad hoc panel “’materially indistinguishable in form and function’ from the [private] panel resolving the dispute between ZF and Luxshare.” (Citation omitted.) The treaty was “designed to attract foreign investors,” according to the Court, and “reflects the countries’ choice to offer investors the potentially appealing option of bringing their disputes to a private arbitration panel that operates like commercial arbitration panels do.” Thus, the Court held that neither of the panels at issue qualified as a “foreign or international tribunal” under §1782, and reversed the lower courts.