The United States Supreme Court held on June 14, 2022, that Section 1782 applies only to international arbitration proceedings in which the tribunal exercises governmental authority to determine disputes. Justice Barrett delivered the Court’s unanimous decision that only governmental or intergovernmental adjudicative bodies fall within the scope of “foreign or international tribunals” for purposes of the statute. This ruling eliminates the use of Section 1782 in international commercial arbitrations, as well as any investor-State arbitration where a party cannot establish the tribunal’s exercise of a governmental function.
As we have previously highlighted, the precise meaning of the phrase “foreign or international tribunal” has been hotly contested in the lower courts for a number of years, which resulted in a split among the appellate circuits over the proper application of Section 1782 with respect to non-judicial bodies. View the Baker Botts International Arbitration Report here (beginning on pg. 27). The Supreme Court has now resolved that split.
The Court heard two consolidated cases: ZF Automotive v. Luxshare Ltd., which involved an international commercial arbitration, and AlixPartners v. Fund for Protection of Investors’ Rights in Foreign States, which concerned international investment arbitration.
In the first case, ZF Automotive US, Inc. (“ZF”), a U.S.-based subsidiary of a German corporation, sold two business units to Luxshare, Ltd., a Hong Kong-based company. Luxshare claimed that ZF had concealed information about the business units that caused Luxshare to overpay for the units by hundreds of millions of dollars. The contract provided that all disputes would be decided in accordance with the Arbitration Rules of the German Institution of Arbitration e.V., or “DIS”, a private dispute-resolution organization based in Berlin, by a three-member panel. As a pre-arbitration measure, Luxshare made a 1782 application in the U. S. District Court for the Eastern District of Michigan seeking information from ZF and two of its senior officers. ZF attempted to quash subpoenas issued pursuant to the application and, after the Sixth Circuit denied a stay in the case, the Supreme Court granted certiorari to resolve a split among the Courts of Appeals over whether Section 1782’s language “foreign or international tribunal” includes private arbitral panels.
The second case involved a dispute between the government of Lithuania and a Russian investor in a failed Lithuanian bank, AB bank as SNORAS (“Snoras”). After finding that Snoras was unable to meet its obligations, the Lithuanian central bank nationalized it and appointed the CEO of New York-based consulting firm AlixPartners, LLP, as temporary administrator. Lithuanian authorities eventually commenced bankruptcy proceedings and declared Snoras insolvent. The Fund for Protection of Investors’ Rights in Foreign States—a Russian corporation and the assignee of the Russian investor—claimed that Lithuania had expropriated certain investments from Snoras during this process and initiated a proceeding under a bilateral investment treaty (“BIT”) between Lithuania and Russia. The Fund filed a Section 1782 application in the U. S. District Court for the Southern District of New York to obtain information about the CEO’s role as temporary administrator of Snoras. AlixPartners resisted discovery on the basis that the ad hoc arbitration panel under the treaty was not a “foreign or international tribunal”. After the Second Circuit ruled against AlixPartners and held that Section 1782 applied, the Supreme Court granted certiorari and consolidated the two cases.
The Court concluded that the phrase “foreign or international tribunal” is best understood as an adjudicative body that exercises governmental authority imbued by one country (in the case of a “foreign” tribunal) or multiple countries (in the case of an “international” tribunal). The Court relied not only on textual analysis but also pointed to the legislative history of Section 1782 and the scope of the Federal Arbitration Act (“FAA”) which governs U.S. domestic arbitrations. The Court noted that the statutory history demonstrated Congressional intent to increase “assistance and cooperation” to other sovereign nations in the interest of comity, which was at odds with extending the provision to private, non-governmental bodies. The Court further pointed to the more limited scope of discovery available under the FAA (which, unlike Section 1782, excludes pre-arbitration discovery) and the “notable mismatch” between foreign and domestic arbitration created by applying Section 1782 to private arbitrations.
The Court held that neither of the panels in ZF Automotive or AlixPartners met the standard of exercising governmental authority. The ZF Automotive panel arose from a contract between two private parties and the arbitration was administered by a private institution with no government involvement. With respect to AlixPartners, the Court found no intent by Russia or Lithuania to confer governmental authority on tribunals formed under the BIT. For example, the BIT did not establish the panel but only set out the rules and procedures for its formation. Moreover, the tribunal functioned independently and was not affiliated with either the government of Russia or Lithuania. The Court also noted the lack of other “possible indicia” of a governmental nature, such as public funding of the tribunal or publication of the arbitral proceedings and outcome.
While the Court did not foreclose the possibility that a government could confer an ad hoc panel with official authority, it declined to prescribe the attributes necessary to constitute a “foreign or international tribunal” for purposes of Section 1782. Moreover, the Supreme Court’s opinion leaves Section 1782 available as an avenue for pre-suit discovery in aid of foreign litigation, as opposed to arbitration. We note that courts have interpreted the statute to permit pre-litigation discovery in some instances. Accordingly, we expect an increase in cases seeking discovery in aid of litigation, even if the petitioner may also be considering arbitration, and consequent disputes over whether the anticipated discovery is truly intended for litigation, arbitration, or both.
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