Supreme Court Ends Access to US Discovery for Private Arbitrations in Foreign Countries
A federal statute, 28 USC 1728(a), commonly referred to as Section 1728, permits federal courts to order discovery “… for use in a proceeding in a foreign or international tribunal …”. ZF Automotive US, Inc. v Luxshare, Ltd., ___ US ___ (Case No. 21-401, June 13, 2022) involved two consolidated cases. The first was conducted pursuant to the Arbitration Rules of the German Institution of Arbitration e.V. (DIS). The second, was before an ad hoc arbitration panel in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law. The legal issue was whether the parties could use US federal courts to compel discovery under Section 1728. The Court answered the question in the negative, based on a textual analysis supported by legislative history. The Court reasoned that Section 1728 was an attempt to extend comity to foreign countries to encourage reciprocity. Thus, the phrase “foreign or international tribunal,” as it appeared in Section 1728, only applied to adjudicative bodies that exercised a portion of the sovereign power a foreign country. The phrase did not apply to the entirely private dispute resolution mechanisms located in foreign countries. The Court added that, otherwise, there would be mismatch between the limited discovery permitted in domestic private arbitrations, pursuant to the Federal Arbitration Act (FAA), 9 USC 1, et seq., and the relatively broad discovery afforded litigants in foreign private arbitrations.