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SCOTUS Closes the Door on Section 1782 Discovery for Private Arbitration

Brian A Hill and Rachel Mendelson

SCOTUS Closes the Door on Section 1782 Discovery for Private Arbitration
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The U.S. Supreme Court recently ruled that 28 U.S.C. section 1782 does not allow for U.S.-court-compelled discovery in private foreign arbitrations. As a result, practitioners should consider the impact of forum selection on the availability of U.S.-based third-party discovery under section 1782 both when drafting arbitration provisions and making a forum selection after a dispute has arisen.

On June 13, 2022, the Supreme Court released its opinion in ZF Auto. US v. Luxshare, Ltd., that limits the circumstances in which participants to foreign arbitrations are entitled to discovery through U.S. courts. 142 S. Ct. 2078, 213 L. Ed. 2d 163 (2022). Under section 1782 an interested party to a “foreign or international tribunal” may be entitled to American-style discovery of third parties when relevant documents or witnesses are found within the United States. Parties must submit an application to the district court in which the entity or individual from whom discovery is sought resides and, if the application is granted, can get discovery that includes documents, admissions, interrogatory responses, and sworn testimony. The Court in ZF Auto resolved an existing circuit split, and unanimously held that “only a governmental or intergovernmental adjudicative body” is a “foreign or international tribunal” under section 1782. Id. at 178.

The Fourth and Sixth Circuits had ruled that under section 1782 a private international arbitration is a “foreign or international tribunal,” while the Second, Fifth, and Seventh Circuits had found that it was not. See Servotronics, Inc. v. The Boeing Company, 954 F.3d 209 (4th Cir. 2020); Abdul Latif Jameel Transportation Co. Ltd. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019); Nat’l Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999); Republic of Kazakhstan v. Biedermann Internat’l, 168 F.3d 880 (5th Cir. 1999); Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2020). The split meant that some third parties—depending on their location—could find themselves subject to lengthy and expensive discovery for use in foreign, private arbitrations. After ZF Auto, that risk no longer exists.

The Court first decided that “foreign” takes on its more governmental meaning when it modifies a word such as “tribunal,” which has “potential governmental or sovereign connotations.” ZF Auto. U.S., 142 S. Ct. 2078, 213 L. Ed. 2d at 172. The Court next interpreted “international,” holding that a tribunal is “international” when it “involves or is of two or more nations, meaning that those nations have imbued the tribunal with official power to adjudicate disputes.” Id. at 173. Based on those conclusions, the Court held that section 1782 is limited to proceedings before “a tribunal imbued with governmental authority” by one or more nations. Id. For example, the Court explained that an arbitral tribunal does not fall within section 1782 when it is “not a pre-existing body” and when it derives its authority from the consent of the parties rather than because a government has “clothed the panel with governmental authority.” Id. at 168.

Practitioners advising clients involved in international arbitration should therefore consider the implications of ZF Auto when making forum selection decisions. This is true both up front—when drafting an arbitration provision—and, down the road, when making a forum selection after a dispute has arisen. Companies eager to ensure that their counterpart can take no discovery from U.S. persons should contract for, or select, non-governmental, private arbitrations. On the flip side, a company seeking discovery of U.S. persons should ensure it has selected a forum that is “imbued with governmental authority.” Id. at 173. The Court did not provide a bright line definition of what level of governmental control and influence is required for an arbitral tribunal to be considered a “foreign or international tribunal,” and instead explained that “[t]he relevant question is whether the nations intend[] that the [tribunal] exercise governmental authority.” Id. at 177. If an international arbitration is thus suitably “imbued with governmental authority,” section 1782 will provide an avenue for compelled discovery in the United States, but if not, practitioners will want to consider less formal methods in order to obtain “discovery” from U.S. persons.