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High Court Debates U.S. Discovery for Private Arbitration Abroad

March 23, 2022, 4:32 PM

Eight members of the U.S. Supreme Court heard oral argument Wednesday in a set of cases that will determine the reach of the nation’s vast and uniquely complex civil discovery apparatus.

Justice Clarence Thomas is sitting the arguments out after being hospitalized for an infection on March 18. But Chief Justice John G. Roberts Jr. said in a Sunday press release that he will participate in the consideration of any cases he misses due to his illness.

The appeals, ZF Automotive US Inc. v. Luxshare Inc. and AlixParters LLP v. Fund for Protection of Investors’ Rights in Foreign States, revolve around the scope of 28 U.S.C. §1782, which authorizes federal district courts to order discovery for use in a “foreign or international tribunal.”

While the U.S. Courts of Appeals for the Second, Fifth, and Seventh circuits have held that the statute is limited to proceedings before government bodies, the Fourth and Sixth circuits have held that it extends to private commercial arbitral tribunals.

Although the Second Circuit, like the Fifth and Seventh circuits, has held that a private commercial arbitration is not a “foreign or international tribunal” under the statute, it has adopted a more flexible standard, relying on a multifactor approach to distinguish private international commercial arbitration from government-sponsored arbitration.

Both of the underlying cases involve private agreements with petitioners that are fighting U.S. court-ordered discovery on the basis that Section 1782 is limited to government-backed bodies. But there is one important factual distinction.

While ZF Automotive deals with an arbitration agreement made pursuant to a purely private agreement, AlixPartners LP deals with investor-state arbitration mandated by a bilateral investment treaty.

The justices spent much of the time probing exactly what it means to be a “governmental” tribunal.

ZF argued that it was limited adjudicative bodies that are created by the government and that exercise authority conferred by the government.

Treaty-Mandated Arbitration

In AlixPartners LP, the New York-based consulting firm was subpoenaed as a third party in connection with work it did for the Bank of Lithuania, in a dispute over claims brought by the Fund for Protection of Investors’ Rights in Foreign States, a Russian investment entity.

The bank and the fund initiated arbitration pursuant to a treaty between Lithuania and Russia giving the parties the option to bring claims before a private, agreed-upon arbitration panel. Applying the Second Circuit’s multifactor test, the court decided it was authorized to order discovery in the case.

At argument, the Fund emphasized that the arbitrator would be resolving whether Lithuania breached its obligations not to take Russian citizens’ property without notice. It’s a public-private “hybrid-ized” institution, the Fund argues.

Congress intended to provide support for these types of proceedings, according to the fund.

In ZF Automotive, the Michigan-based subsidiary of German-based ZF AG was ordered to produce discovery in a dispute with Luxshare Inc., a Chinese-owned company based in Hong Kong, over alleged misrepresentations ZF made when it sold Luxshare its Global Body Control Systems business unit in 2017.

The sales agreement provided that the parties would resolve disputes before the German Arbitration Institute, a private dispute resolution company also known as “DIS.”

ZF argues that the phrase “foreign or international tribunal” contemplates only government-backed dispute resolution bodies. AlixPartners LP agrees but goes a bit further, arguing that a private arbitration panel mandated pursuant to an international treaty isn’t a government-backed body.

The respondents both argue that Congress meant for the phrase “tribunal” to be construed more broadly, arguing that it encompasses essentially any body governed by a foreign jurisdiction and its laws.

The U.S. government is among the various amici, or “friends of the court,” that submitted briefs in support of AlixPartners and ZF. According to the government, the statute, in light of its legislative history and larger textual context, is plainly limited to government-backed tribunals.

When asked directly, the government said it sees no difference between the cases, even though it involves a relationship between an investor and a state. The state is functionally like a private actor when it agrees to private arbitration, the government said.

There’s no international comity where two parties have agreed to arbitration in order to simplify and “depoliticize” a dispute, it argued.

The government conceded the statute might apply where a treaty creates a formal standing body, and the arbitrators are selected by the government, but said those facts weren’t before the court.

Edwin S. Kneedler argued on behalf of the Solicitor General’s office.

AlixPartners is represented by Willkie Farr & Gallagher LLP, with Joseph T. Baio arguing on its behalf. The Fund is represented by Alston & Bird LLP, with Alexander Athan Yanos arguing on its behalf.

Roman Martinez, from Latham & Watkins LLP, argued on behalf of ZF. Allen & Overy LLP’s Andrew Rhys Davies argued on behalf of Luxshare.

The cases are ZF Automotive U.S. Inc. v. Luxshare Inc., U.S., No. 21-402, docket 3/23/22 and AlixPartners LLP v. Fund for Protection of Investors’ Rights in Foreign States, U.S., No. 21-518, docket 3/23/22.

To contact the reporter on this story: Holly Barker in Washington at hbarker@bloombergindustry.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com