Case of the Day: ZF Automotive v. Luxshare

The newest member of the 1782 club.

The case of the day is ZF Automotive US, Inc. v. Luxshare, Ltd. (S. Ct. 2022). This is the big Section 1782 decision we all have been waiting for, which asks—and answers!—whether foreign arbitrations are proceedings before “foreign or international tribunals,” and therefore whether parties can obtain discovery in the US for use in foreign arbitrations. The short answer: no (with an asterisk I discuss below).

I’ve been interested in this issue for a long time. One of the very first Letters Blogatory posts, from January 2011, addressed it. That post focused on whether it made sense for parties to foreign arbitrations to have greater access to discovery than parties to domestic arbitrations. Here’s what I wrote more than 10 years ago:

Rather than reaching to find ways to increase access to pre-hearing discovery in domestic arbitrations beyond what Section 7 [of the FAA] suggests, perhaps the courts, in deciding whether arbitral tribunals are “tribunals” within the meaning of the judicial assistance statute, should have in mind the arguable desirability of decreasing access to pre-hearing discovery in international arbitrations. Just a thought!

I questioned my emphasis on the tension between discovery under the Federal Arbitration Act, which requires leave of the arbitrator, and discovery under Section 1782, which is available to any “interested person,” whether or not the tribunal consents, in a 2019 post. There, I wrote:

 I have previously suggested that there is at least one reason to think that the statute should not reach private arbitrations: under § 1782, any interested party can seek discovery, whereas under Chapter 1 of the FAA, a court will only enforce a subpoena issued by the arbitrator. Why should a party to a foreign arbitration have greater rights to obtain US discovery than a party to a domestic arbitration? But I no longer think this a good argument, because it proves too much. Suppose the foreign tribunal brought the application for the benefit of one of the parties (as a foreign court sometimes transmits a letter rogatory seeking evidence for the benefits of a party). If it is not a tribunal for purposes of the statute, the application would fail. But why should a foreign arbitrator have less right than a domestic arbitrator here? I think the key really is the legislative intent and the purposes and policies of the statute.

I’ve gone back and forth on this over time and still don’t have a firm view. But what to make of the tension between discovery in domestic and international arbitration is now more or less an academic question in light of yesterday’s decision.

The tension played a role, though not the central role, in the decision. Justice Barrett focused mostly on the meaning of the statutory word “tribunal.” I think the court’s reasoning on that point, in the context of earlier cases, is a good example of the common-law process of judging at work. Here’s why.

Prior to the 1964 amendment to the statute, Section 1782 allowed for assistance to foreign courts. With the enactment of the amendment, it was clear that certain tribunals that were not courts were still within the statute’s purview. But which ones? In Intel, where the tribunal in question was a non-judicial European body, the court used a functional analysis: it decided whether the body was a “tribunal” by asking whether it did the things that tribunals do. Did it adjudicate claims? Did it make findings of fact? And so forth. But there was no question in the case about whether the tribunal was governmental. Plainly it was. As private international arbitration grew in importance, parties began pushing the envelope and seeking to use the statute to see discovery in their arbitral proceedings. The courts’ response focused mostly on trying to understand what the Supreme Court had meant in Intel. On the one hand, arbitral tribunals pretty clearly meet the functional criteria the decision emphasized. On the other hand, especially in light of the incongruousness of giving parties to foreign arbitrations more access to discovery than parties to domestic arbitrations, courts asked, “is this really what Congress meant?” Hence the circuit split that arose.

Yesterday’s decision is not inconsistent with Intel. As Justice Barrett emphasized, there was no question in Intel about whether the tribunal was governmental. Rather, yesterday’s decision is a further explication of the logic of the statute. Sure, Congress meant to reach quasi-judicial bodies that did some of the things courts do, but the text of the statute makes it clear that Congress didn’t intend to reach every body that adjudicates things. It only meant to reach foreign or international tribunals. And, Justice Barrett writes with some force, both words suggest that the tribunals in question have to be governmental. It would be odd to take the phrase “foreign tribunal” to mean a tribunal that happens to be in a foreign country but that is non-governmental. Can the judges of a foreign dog show obtain discovery about the feeding or grooming of American contestants, in order to decide whether their trainers broker the rules of the show? The judges are adjudicating things, finding facts, etc. As Justice Barrett put it, quoting the amicus brief filed by the United States, “the phrase ‘foreign leader’ brings to mind ‘an official of a foreign state, not a team captain of a European football club.’” And there is some internal textual evidence in the statute, too: it provides that the procedure used to take the evidence “may be in whole or part the practice and procedure of the foreign country or the international tribunal.” This suggests that a “foreign tribunal” is a tribunal of a “foreign country.”

So far, so good. I think the part of the decision holding that a private arbitral tribunal isn’t within the scope of the statute is pretty sound. Now, what about the part that the Court recognized was more difficult? In an arbitration conducted under a bilateral investment treaty, why shouldn’t we think that the arbitral tribunal is exercising governmental authority? After all, the BIT is a treaty between two countries, and it authorizes the appointment of an ad hoc tribunal as one method of resolving disputes under the treaty. If the United States and Canada had a border dispute and they appointed an ad hoc tribunal to adjudicate it, I think it would be pretty clear that the tribunal was within the scope of the statute. It seems to me that the Court was, in fact though not in its rhetoric, focusing less on the governmental nature of the tribunal and more on the nature of the dispute the tribunal was to adjudicate. On that count, the Court may have erred in treating a dispute under a BIT as a private dispute, when in fact the rights the private party asserts against the foreign state are the treaty rights of the investor’s home state.

I think there is room for more development in the law here. It’s now clear that an ad hoc tribunal constituted under the UNCITRAL Rules is out. It’s clear that a national court authorized by a BIT to decide a BIT dispute is in. But those weren’t the only two options under the BIT at issue in the case. The treaty also authorized the investor to bring the dispute in the ICC’s Court of Arbitration. Would the fact that the Court of Arbitration is not an ad hoc tribunal make a difference? Maybe not, in view of the nature of the ICC. Nevertheless, the Supreme Court’s focus on the ad hoc nature of the tribunal at issue suggests that courts will have to explicate the statute further, in the way that common-law courts and judges excel at doing. What about an ICSID tribunal, for example?

There were two bits of especially good news in the decision. The first is that Justice Breyer joined the opinion. He was the dissenter in Intel, and some of his remarks at the oral argument in the new case led me to think he had an interest in revisiting some of the big-picture questions Intel had settled. Fortunately, that didn’t happen, and outside of the context of arbitration, Section 1782 practice is undisturbed. Second, the Court did not delve into the “linguistic corpus” evidence argued in the briefs and mentioned at the argument. I am not a fan of that style of analysis. It tries to turn a problem about understanding policies and rationales into an exercise in math; it’s modern originalism on steroids. Rather, the Court looked at the text of the statute in a reasonable, common-sense way.

3 responses to “Case of the Day: ZF Automotive v. Luxshare”

  1. kotodama

    I’m surprised you didn’t mention the comity rationale. To me that was the most persuasive, despite being relegated to a single paragraph toward the end of the opinion. And under that rationale, I don’t think a BIT dispute would tend to qualify no matter the particular circumstances. In contrast, the textualism stuff is just awkward and painful to get through. So I naturally second your critique of corpus linguistics wholeheartedly. I know a thing or two about computational linguistics (being how one automates corpus linguistics), and that kind of analysis has no business getting within miles of any legal opinion or brief.

    1. Ted Folkman

      Thanks, Kotodama. I don’t think comity is that important in the arbitration context, and I think that while the US approach to comity—unilateral assistance without requiring reciprocity—is the right one, I don’t think anyone thinks anymore that the original purpose of the policy, which was to encourage reciprocity, is likely to bear much fruit.

  2. […] to request a preliminary ruling. Regular readers may be able to guess where this is going. In ZF Automotive v. Luxshare, the reach of Section 1782 turned on whether an arbitral tribunal was a “tribunal” as […]

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