Supreme Court Set To Decide Whether Section 1782 Discovery Can Be Compelled In Foreign-Seated Arbitrations

• Published date: 13 January 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Foley Hoag LLP
• Author: Sudhanshu Roy, Stephen P. Younger, Andrew B. Loewenstein, Christina G. Hioureas and Daniel Schimmel

A. Introduction

Under 28 U.S.C. ' 1782, a District Court may compel a resident individual or company to provide discovery for use "in a proceeding in a foreign or international tribunal." There is presently a circuit court split over what qualifies as a "foreign or international tribunal," including whether Section 1782 can be used to compel discovery in aid of international arbitrations seated abroad.

The Supreme Court previously examined the scope of Section 1782 in Intel v. AMD, albeit in a non-arbitration context, where the Court held, in an opinion by Justice Ginsburg, that discovery could be obtained in connection with proceedings before the European Commission's Directorate General for Competition on the basis that the Directorate General exercises "quasi-judicial" powers and acts as a "first-instance decisionmaker."¹ However, the Court left open the question of whether Section 1782 applies to foreign-seated arbitrations. Circuit courts have since relied on Intel to reach opposing conclusions with respect to whether discovery may be obtained for use in such arbitrations.

In a highly anticipated move, on December 10, 2021, the U.S. Supreme Court granted certiorari to two petitions challenging the authority of federal courts to compel U.S. persons to comply with discovery requests for use in foreign seated arbitrations.

B. The Disputed issues in ZF Automotive and AlixPartners

The dispute in ZF Automotive US, Inc. v. Luxshare, Ltd. surfaced after Luxshare accused ZF of misrepresenting the profitability of two of ZF's overseas businesses, which Luxshare intended to acquire. Luxshare filed for arbitration before the German Institution of Arbitration. During the proceedings, it sought and obtained from the U.S. District Court for the Eastern District of Michigan a Section 1782 discovery order against certain ZF executives.² On appeal, the Sixth Circuit denied ZF's request to quash the order and stay the discovery subpoenas. ZF applied for certiorari to resolve the question of whether Section 1782 can be used to obtain discovery in connection with foreign arbitration proceedings, highlighting the split in the Second, Fourth, Fifth, Sixth and Seventh Circuits'and district courts in many jurisdictions'on this issue. The Supreme Court granted ZF's petition for a writ of certiorari.

AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States arose from an UNCITRAL arbitration initiated by the Fund for Protection of Investor Rights in Foreign States against the Republic of Lithuania pursuant to a Bilateral Investment Treaty between Russia and Lithuania. The fund is an alleged assignee of a former shareholder's claim against Lithuania regarding AB Bankas Snoras (Snoras), a failed Lithuanian bank.

On July 8, 2020, the U.S. District Court for the Southern District of New York granted the Fund's request to order AlixPartners, which had investigated and prepared a report regarding Snoras' solvency that had led to Lithuanian bankruptcy proceedings against the bank, to comply with discovery requests in the investment arbitration. The district court reasoned that the arbitration fell within the scope of Section 1782 as it "was convened under the authority of the Treaty" and that the Fund "seeks to enforce rights established by that treaty against Lithuania as a state."³ The same day, the Second Circuit decided a separate case, finding that commercial arbitration between private parties does not fall within Section 1782.⁴ AlixPartners...