Supreme Court Considers Availability of U.S. Discovery Procedures for International Arbitral Tribunals
In ZF Automotive US, Inv., et al. v. Luxshare, the Supreme Court will decide whether a statutory tool that permits litigants to invoke the authority of United States district courts to render assistance in gathering evidence for use in “a foreign or international tribunal,” authorizes those courts to order discovery for use in private commercial arbitrations. An affirmative finding could make arbitration more similar to U.S. litigation, a change that would have significant implications for parties to arbitration and the U.S. court system. This Bulletin post explores the stakes and arguments at issue in this litigation.
A shelf full of paper files illustrates the stakes of increased discovery for international commercial arbitrations. Photo: Flickr
By: Maximilian Yuri Markus Frank
Arbitration is an increasingly popular form of dispute resolution for parties to international commercial contracts. Parties who include arbitration clauses in their contract may seek to take advantage of arbitration’s appealing features, such as the ability to resolve disputes in a neutral venue rather than in one of their domestic courts, or the enhanced procedural flexibility available in arbitration. In cases where U.S. courts could be used as a forum, parties may have yet another desire: to avoid the expansive discovery procedures characteristic of U.S. litigation.
A case currently before the Supreme Court may change parties’ calculus with regard to this last consideration. In ZF Automotive US, Inc., et al. v. Luxshare, Ltd, the Supreme Court has been asked to resolve a circuit split and decide “whether 28 U.S.C. § 1782(a), which permits litigants to invoke the authority of United States district courts to render assistance in gathering evidence for use in ‘a foreign or international tribunal,’ authorizes those courts to order discovery for use in a purely private foreign commercial arbitration proceeding conducted by private parties, and private arbitrators, pursuant to a private contract.”
American discovery has been described as “so completely alien to the procedure in most other jurisdictions that an attitude of suspicion and hostility is created.” It is accordingly unsurprising that a recent proliferation of §1782 requests has been scrutinized, including in a study that found that §1782 requests nearly quadrupled between 2005 and 2017.
If this increased use of American discovery has brought angst to litigants in foreign courts, the angst is surely greater among parties to arbitrations, where widely-applied soft law instruments counsel a more “limited search of evidence that is relevant and material to the outcome of the arbitration.” ZF Automotive brings various features of this dispute to the fore.
1. Litigants clash on textual interpretation and policy considerations
To supporters of more limited evidence gathering in arbitration, the availability of §1782 discovery poses an existential threat to arbitration as a flexible and efficient alternative to litigation. Petitioners ZF Automotive argue that extending §1782 to arbitration “would spawn time-consuming and expensive discovery disputes and generate the kind of ‘procedural morass’ that private parties seek to avoid through arbitration.”
On the other hand, respondent asserts that expanding §1782 does not require “full-blown” pre-trial discovery and quotes the forthcoming restatement on the topic, which states that “courts generally exercise considerable restraint, granting access to requested information only in limited circumstances when the grant is consistent with the tribunal’s receptivity to the information.” Respondent asserts that such narrowness, alongside parties’ ability to contract around the availability of §1782 in their arbitration agreements, mitigates the threat of an expanded §1782 to arbitration.
Petitioners and respondent also rely on textual and policy arguments to support their position. A key dispute hinges upon whether “Foreign or International Tribunals” includes arbitration as a matter of textual interpretation. Both parties claim support in the ordinary and legal meanings of “foreign” and “tribunal.” Petitioners focus on legal meaning to tie the terms to the courts of foreign countries.
Respondent focuses on past and president ordinary usage, citing a Webster’s definition of tribunal as “a person or body of persons having to hear and decide disputes so as to bind the parties.” Their position also draws support from a broad base of Supreme Court case law in which “tribunal” is used as shorthand for an arbitration panel. Petitioners respond that such a definition would encompass any entity with binding adjudicatory authority, such as Oxford University’s Conference of Colleges Appeals Tribunal for student discipline and Facebook’s Oversight Board.
Parties also lock horns over a key public policy implication of this decision, namely, the extent to which expanding §1782 would burden U.S. courts. Referring to the increasing frequency of §1782 requests with regard to litigation alone, petitioners claim that an expansion to arbitration would further burden an already bogged-down federal docket. Respondent responds that, though growing, the number of requests is still small, and that in any case, the court cannot rewrite a statute to avoid a flood of litigation.
2. Amici focus on burdens to future arbitrations
Writing in support of petitioners, the United States contends that “the statutory phrasing and context show that ‘foreign or international tribunal’ refers to a governmental adjudicator” and that this position is supported by the statutory history. The Institute of International Bankers emphasizes the burden that §1782 places on respondents not otherwise subject to American courts, claiming that “[a]pplicants in §1782 proceedings frequently ask banks to produce an overwhelming number of documents” and that its members “spend millions of dollars annually responding to such applications.”
The U.S. Chamber of Commerce and Business Roundtable focuses on the asymmetric threat that an expanded §1782 poses to American companies: because the application of §1782 is limited to “the district in which a person resides or is found,” a party to arbitration domiciled in the U.S. may be subject to discovery requests that could not be levied against a foreign arbitral counterparty. In support of respondents, Columbia Law Professor George Bermann and others have noted that an inclusive reading of “international tribunals” is consistent with the Supreme Court’s Intel decision on the scope of §1782 and the Federal Arbitration Act.
3. Significance and further considerations
One would be hard-pressed to meet an arbitrator and not hear the phrase “arbitration is a creature of contract” within the subsequent five minutes. At its heart, arbitration is about the ability of parties to contract around the manifold obligations of litigation in national courts. A holding that parties to arbitration may, notwithstanding ex-ante silence on the matter, be subject to U.S. discovery would mark a significant departure from the current landscape of party autonomy.
Whether the court expresses an opinion on the ability of parties to contract around the application of §1782 is also an open question. At first blush, given the latitude courts have given parties in crafting arbitration agreements, it seems unlikely that submission to §1782 would be compulsory.
More generally, an expansion of §1782 appears to bring arbitration more in line with litigation procedures. The question, as the litigants and Amici emphasize, is whether such a rule can bring arbitration parties the truth-seeking benefits of discovery without the burdensome costs and delays that arbitration is intended to avoid.
It is also worth noting that in addition to practical objections to the delay and expense of extensive discovery, some parties also object in principle to invasive discovery requests, another factor that can contribute to a desire to arbitrate.
The floodgates question will also be likely to get attention from judges. As indicated above, both international commercial arbitrations and §1782 requests are increasing in frequency, and the court has already indicated sensitivity to floodgate concerns, coverage of which has only increased during the COVID pandemic.
However, given the textualist bent of the current court, it is clear how large this concern will loom in the court’s eventual opinion. Additionally, the Supreme Court’s decision in Intel indicates that “a court presented with a §1782(a) request may consider… the receptivity of the foreign government, court, or agency to federal-court judicial assistance.” This suggests that tribunals may still retain ultimate control over the scope of §1782 discovery if they are not “receptive” to parties’ broad evidentiary submissions.
In short, this eagerly-awaited case will bring welcome clarity to the landscape of international commercial arbitration. Given the increasing prominence of international commercial arbitration as a form of dispute resolution, this development should be welcomed by legal observers.
Maximilian Frank is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. He graduated from Harvard College in 2019. He is an award-winning member of Columbia Law School’s Vis International Commercial Arbitration Moot Court Competition.