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  1. News
  2. Justice delayed, justice denied?

Justice delayed, justice denied?

District court pauses discovery in aid of international arbitration pending Supreme Court decision
14 February 2022
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As the U.S. Supreme Court considers two cases involving the availability of discovery in international arbitration proceedings, a district court puts discovery in aid of arbitration on hold.

Index
  1. What has happened
  2. What this means

What has happened

U.S. courts permit broad discovery and provide a mechanism for litigants in front of foreign tribunals to seek discovery from U.S. courts. Under 28 U.S.C. § 1782, federal district courts may order a person or entity within the court’s jurisdiction to give testimony or produce documents “for use in a proceeding in a foreign or international tribunal.”

Federal courts are divided as to whether arbitrations arising from private commercial agreements count as “international tribunals” under that statute. The Second, Fifth, and Seventh Circuits hold that Section 1782 applies only to state-sponsored international tribunals, including treaty based investment arbitration, but not private commercial arbitration. In contrast, the Fourth and Sixth Circuits hold that Section 1782 extends to international commercial arbitration. 

The Supreme Court planned to consider this issue last Term, but the parties settled and mooted the dispute. The Supreme Court has another chance to resolve the split this Term when it hears argument in ZF Automotive US v. Luxshare in March. In an unexpected development, however, in December 2021, the court consolidated ZF Automotive with a related case presenting an issue on which federal courts largely agree – whether Section 1782 applies to arbitration tribunals established by international treaties between foreign States. That case, AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, involves private arbitration between a Russian corporation and Lithuania authorized by treaty between Lithuania and Russia. The corporation sought evidence from New York-based AlixPartners and asked the district court to order discovery under Section 1782. The district court granted the request, AlixPartners appealed, and the Second Circuit affirmed. The Second Circuit distinguished arbitral tribunals established by treaties between foreign States from those authorized by purely private agreements, concluding that the former (but not the latter) qualify as “international tribunals” under Section 1782. 

Consolidating AlixPartners with ZF Automotive suggests that the Supreme Court may rule more broadly than initially expected, and lower federal courts have noticed. A federal magistrate judge in New York’s Eastern District recently stayed a discovery application in a treaty arbitration pending the Supreme Court’s decision. The stay in In Re Alpene, Ltd., is even more noteworthy because the arbitration at issue is an International Centre for the Settlement of Investment Disputes (ICSID) arbitration. Because ICSID arbitrations are administered by the World Bank, they may be characterized as “quasi-governmental,” distinguishing them from the bilateral treaty arbitration at issue in AlixPartners, where the arbitral tribunal has no official government affiliation. The magistrate acknowledged the potential difference, but nevertheless stayed discovery, explaining that the Supreme Court had “reached out to decide an issue that was not in dispute” and will “shed light on what qualifies as a foreign or international tribunal for purposes of § 1782.” In doing so, the court noted that the parties to the arbitration had not yet scheduled their initial procedural conference, and therefore there would be no prejudice from a stay. 

What this means

If other courts follow In Re Alpene’s lead, discovery under Section 1782 may be effectively unavailable until the Supreme Court issues its decision, likely in June of 2022. Unless a party seeking discovery under Section 1782 can show a court that it would be prejudiced by a stay, or convince the arbitration tribunal to delay the proceedings pending U.S. discovery, an applicant forced to wait for the Supreme Court may not get discovery before arbitration hearings are concluded. The Supreme Court’s decision, moreover, may ultimately affect the ability of litigants to obtain discovery in international arbitration proceedings.

 

 

Authored by Ollie Armas, Sam Zimmerman, Mike Jacobson, David Michaeli, Katherine Wellington, and Dana Raphael.

Contacts
Ollie Armas
Partner
New York
Sam Zimmerman
Partner
New York
Mike Jacobson
Counsel
Washington, D.C.
David Michaeli
Counsel
New York
Katherine Wellington
Partner
Boston
Dana Raphael
Associate
Washington, D.C.
Index
  1. What has happened
  2. What this means
Keywords Discovery, 1782, ICSID, Supreme Court, Arbitration, Investment Treaty
Languages English
Topics Commercial Arbitration, Investment Treaty Arbitration and Disputes, Public International Law Arbitration, U.S. Appellate and Supreme Court Litigation
Countries Australia, People's Republic of China, Hong Kong, Indonesia, Japan, South Korea, Mongolia, Singapore, Vietnam, Belgium, France, Germany, Hungary, Italy, Luxembourg, Netherlands, Poland, Spain, United Kingdom, Saudi Arabia, United Arab Emirates, United States, Brazil, Mexico
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