Foreign Discovery Tips After Justices Tapered Statute's Scope

Under Title 28 of the U.S. Code, Section 1782, parties in proceedings with foreign or international tribunals may request discovery from U.S. entities in their country's district courts.

For over 30 years, following the U.S. Supreme Court's 1987 Societe Industrielle Aerospatiale v. United States District Court decision, domestic and foreign litigants who were pursuing discovery from U.S.-based entities for use in foreign proceedings were able to pursue that discovery in U.S. courts.

However, in the combined June 13 ZF Automotive U.S. Inc. v. Luxshare Ltd. and AlixPartners LLP. v. The Fund for Protection of Investors' Rights decisions, the U.S. Supreme Court reined in the scope of Section 1782.

The high court held that these U.S.-style discovery procedures are unavailable during international or foreign arbitration proceedings. Relying on principles of comity, the court decided that a "foreign or international tribunal should include only governmental bodies, not private arbitrators."

Background: Aerospatiale

The Aerospatiale case involved discovery requests executed under the Federal Rules of Civil Procedure and directed at foreign nationals over whom a U.S. district court had jurisdiction.

The foreign parties refused to submit to the U.S.-discovery requests, insisting that the Hague Convention provided the exclusive means of taking evidence abroad. The court held that the convention was not intended to abrogate domestic laws or provide a mandatory avenue for conducting international discovery.

In other words, U.S.-discovery under the federal rules is available to domestic litigants, even if the Hague Convention may provide alternative means or procedures.

The court provided factors that may be considered when determining whether discovery under the federal rules  or the Hague Convention is proper. Generally, these factors encompass the principle of comity — creating mutual respect for domestic laws and the laws of foreign nations. On a case-by-case basis, courts should consider:

1. The importance to the litigation of the documents or other information requested;

2. The degree of specificity of the request;

3. Whether the information originated in the United States;

4. The availability of alternative means of securing the information; and

5. The extent to which noncompliance with the request would undermine important interests of the United States, or compliance with the request would undermine important interests of the state where the information is located.[1]

The court did not provide specific rules for this "delicate task of adjudication."

Instead, the factors provide a nonexhaustive list of considerations, which should be considered in any comity analysis. Still, district courts retain broad discretion to approve or deny requests for discovery for use in foreign proceedings.

The Aerospatiale decision makes clear that discovery under the federal rules may be properly directed at foreign entities with a presence in the U.S. when comity factors weigh in favor of U.S. procedure over use of the Hague Convention. Accordingly, entities with U.S. ties and information that could be used in a foreign litigation may be faced with discovery requests under either the federal rules or Hague Convention.

The ZF Automotive Decision

Before the Supreme Court's decisions in ZF Automotive and AlixPartners, the availability of discovery under Section 1782 in foreign and international private arbitration proceedings was an open question, and courts were split on the influence comity considerations had on nongovernmental foreign or international tribunals.[2] However, this decision makes clear comity involves respect for the laws of foreign governments — not the contracts of private parties.

The Supreme Court first looked to the text and purpose of  Section 1782, concluding that the statute exists to further comity. Congress, in enacting Section 1782, wanted to promote respect for the governments and laws of foreign nations.

In turn, the hope was that foreign judicial authorities will provide similar support for discovery requests sent from U.S. courts directed at foreign nationals. When considering the meaning of Section1782, the Supreme Court reasoned that providing nongovernmental arbitrators access to U.S.-style discovery would do nothing to promote comity between the corresponding governments with jurisdiction over the private parties. In other words, providing parties to a private, foreign arbitration access to U.S.-style discovery is not likely to encourage foreign courts to permit U.S.-style discovery on foreign soil.

Second, the Supreme Court reasoned that extending Section 1782 to cover nongovernmental arbitrations would provide greater access to discovery in foreign arbitration than in domestic arbitration, which is limited by the Federal Arbitration Act . While the act only allows the arbitration panel (not the parties) to request discovery, Section 1782 permits any interested person to petition for approval to propound discovery requests.

Accordingly, the Supreme Court found that a consistent interpretation of the scope of discovery in arbitration proceedings should permit only "governmental" bodies to request discovery from U.S. parties to arbitration. Otherwise, the authority granted during foreign or international arbitration would exceed that granted during domestic arbitration.

Third, the Supreme Court held that organizations are governmental if they receive their authority from a foreign nation (or multiple nations). Thus, the private arbitrators in the ZF Automotive and AlixPartners cases did not qualify as foreign or international tribunals under Section 1782, but the decision does not foreclose the possibility that government-sponsored arbitration proceedings could qualify.

Takeaways From ZF Automotive

The ZF Automotive decision recognizes that comity is not a legal obligation, but rather the respect afforded

to the laws of foreign nations in the hope that those foreign nations will provide mutual respect for domestic laws.

And Aerospatiale allows litigants to ignore Hague Convention procedures entirely when a U.S. court has jurisdiction over a party subject to discovery.

However, Aerospatiale provides the guidelines to prevent U.S. courts from permitting discovery that would damage comity — such as allowing discovery under the federal rules that would be unavailable or impermissible under the laws of the jurisdiction where the material was sought.

But ZF Automotive elucidates that foreign, private arbitration does not implicate comity considerations. So, U.S. courts do not need to consider the arbitration laws of the foreign, controlling jurisdiction — a consideration that is critical in Aerospatiale.

Another concern of the court in ZF Automotive was that foreign arbitrators would enjoy broader access to discovery than their domestic counterparts who are subject to the discovery restrictions of the FAA.

In contrast, discovery in foreign countries is often less permissive than in the U.S., reducing the likelihood that U.S. entities subject to foreign litigation would be faced with broader discovery than in U.S. court. And as foreign, private arbitrations are not characterized as tribunals under § 1782, the holding of Aerospatiale is unlikely to subject U.S. citizens to discovery requests from foreign arbitrations that would have been unavailable in domestic arbitrations.[3]

Conclusion

Ultimately, ZF Automotive forecloses using U.S.-style discovery in foreign arbitration.

This limitation reduces the possibility that a U.S. entity involved in foreign arbitration could be subject to one-sided U.S. discovery.

However, arbitrations involving foreign governments may still qualify as proceedings in international tribunals under Section 1782, if the arbitrators are given authority by a foreign government or multiple governments.

Endnotes

[1] See Societe Nationale Industrielle Aerospatiale v. United States Dist. Court for S. Dist. , 482 U.S. 522, n. 28.

[2] Ann Ryan Robertson & Scott L. Friedman, Coming to America: The Use of 28 U.S.C. § 172, 25 J. Arb. Studies 3 at 59 (August 2015).

[3] U.S. companies may be subject to foreign litigation more than in the past due to the advent of the EU patent court and worldwide rise of SEP litigation.
Therefore, U.S. entities, or foreign entities with U.S. operations or affiliates, should be wary of agreeing to arbitration provisions that could open them up to one-sided U.S. discovery.