Naked or “Clothed”? The Importance of Foreign Government Intent in Applying 28 U.S. Code § 1782 (a)
ZF Automotive US, Inc. v. Luxshare, LTD.
The United States Code authorizes a federal district court to compel individuals and companies within its jurisdiction to provide discovery to proceedings pending in “foreign and international tribunals.” 28 U.S.C. § 1782 (a). But does that apply to private commercial arbitration and bilateral investment treaty arbitrations? On Monday June 13th, 2022, the Supreme Court released a unanimous decision written by Justice Barrett clarifying the scope of the phrase “foreign or international tribunal” in 28 U.S.C. § 1782 (a) – and it turns on whether the tribunal is “clothed” with governmental authority.
The Court held although 28 U.S. Code §1782 permits a district court to order discovery “for use in a proceeding in a foreign or international tribunal,” only a governmental or intergovernmental adjudicative body may qualify as such a tribunal, and the private arbitration panels in ZF Automotive US, Inc. v. Luxshare, LTD. are not such adjudicative bodies.
In the Court’s reading of the plain language of the statute, Justice Barrett notes the word “tribunal” does not stand alone—it is modified by “foreign” or “international.” When read together, the meaning requires the tribunal to belong to a foreign nation or multiple international nations. To belong to a foreign nation, the tribunal must possess sovereign authority conferred by that nation. To belong to international nations, the tribunal must possess sovereign authority conferred by two or more nations.
The Court held that this reading is in line with the statute’s history due to § 1782’s purpose of comity. Limiting the scope of “foreign and international tribunals” ensures federal courts are assisting foreign and international governmental bodies, which promotes respect for foreign governments and encourages reciprocal assistance. The Court notes expanding the scope of § 1782 to private bodies would not serve the purpose of comity.
In summary, “foreign tribunal” and “international tribunal” are read in a complementary fashion; the former is a tribunal that exercises governmental authority conferred by a single nation, and the latter is a tribunal that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within the scope of § 1782.
So, how does the Court determine if a tribunal has governmental authority? The Court laid out many considerations that could indicate a tribunal is a governmental or intergovernmental adjudicative body. These are some factors discussed by the Court:
- The country or countries intended to exercise governmental authority via the tribunal.
- The country or countries form an ad hoc arbitration panel for adjudication and participate in the funding of the operation.
- Government officials are relied on for the functioning of the panel.
- The panel’s proceedings are not confidential to the government.
- The panel’s award is made public.
These factors could signal that the adjudicative body is “clothed” with government authority. However, none of these factors are dispositive. The Court held that these factors may be used as evidence to establish the intent of the relevant nations to imbue the body in question with governmental authority.
Applying these factors in ZF Automotive US, the Court found that the tribunal in question was not a “foreign or international tribunal” entitled to discovery under 28 U.S.C. § 1782 (a) because:
- The panel derives its authority from the private parties’ consent to arbitrate.
- A treaty does not itself create the panel; instead it references the set of rules that govern the panel’s formation and procedure if an investor chooses that forum.
- The panel functions independently of and is not affiliated with a government.
- The panel lacks government funding.
- The proceedings maintain confidentiality.
- The award may be made public only with the consent of both parties.
While the Supreme Court has now provided guidance on this question, the multi-factorial approach adopted by the Court may lead to continued legal battles over the applicability of 28 U.S.C. § 1782 (a) to your case.
Ward & Berry has assisted its clients with obtaining discovery under 28 U.S.C. § 1782 (a). If you are seeking discovery under § 1782 (a), or are facing a petition to obtain discovery from you under § 1782 (a), please don’t hesitate to contact us.