For decades, the international business community has been confused as to whether 28 USC §1782, a law that makes US-style discovery available “for use in a proceeding in a foreign or international court”, applies to international arbitration. The United States Court of Appeals for the Fourth and Sixth Circuits had said yes, while the Second, Fifth, and Seventh Circuits had said no.
The issue is crucial because U.S. disclosure rules are sweeping, requiring parties to turn over evidence they would not be required to provide in lawsuits filed in other countries or in international arbitration proceedings.
Section 1782 may thus provide a back door to restrictions on gathering evidence in other places. Unsurprisingly, lawyers and businesses have come to view it as a powerful strategic tool in resolving international disputes.
In ZF Automotive US, Inc. v. Luxshare, Ltd., on June 13, the United States Supreme Court removed §1782 from the table of international arbitration. In a unanimous opinion, Judge Amy Coney Barrett wrote that only “governmental or intergovernmental adjudicative bodies” fall under §1782, and that the international arbitrations involved in the case – a commercial arbitration before the German Institution of Arbitration and an investor-state arbitration before an ad hoc arbitral tribunal—does not count.
By drawing that line, the ruling helps practitioners plan ahead and will create more consistency in how lower courts rule. However, this line is somewhat dotted, because the ruling leaves loopholes open that nevertheless allow §1782 to be used in international arbitration due to the way the law operates as a whole.
2004 Supreme Court interpretation “surprisingly broad”
When the Supreme Court addressed §1782 in Intel versus advanced micro-devices in 2004, he interpreted the law as surprisingly broad and limited only by discretionary factors that rely on judges to conduct unmanageable analyses.
Due to IntelUS-style discovery has become available for proceedings that are contemplated, even before they are filed, and regardless of whether the requested discovery is permitted under the rules of the foreign or international court in which it is to be used.
Instead of clear rules, Intel asked judges in lower courts facing §1782 claims to use their discretion and consider four factors, including whether the court is receptive to U.S. discovery assistance. The problem is that these factors are difficult for judges to apply.
Most requests are made ex parte and seek discovery from a third party not involved in the dispute, such as a bank that has an adversary’s financial information. But a third party is unlikely to know much about the foreign proceeding or the court’s receptivity to the American discovery, and so is in no position to resist the request.
Explosion in the use of §1782
Use of §1782 has exploded since 2004, and lower courts are granting claims at very high rates. In my research, I find that the number of requests has quadrupled between 2005 and 2017 and that requests from private actors are granted 90% of the time.
(The law also allows foreign and international courts to request discovery. These requests are also granted at a high rate, but they are less controversial because the court is obviously receptive to US discovery in these cases.)
Not only is American discovery sought for international arbitrations – these account for more than 10% of all requests from private actors – but 10% of requests relate to contemplated proceedings and almost 30% are intended for use in several procedures, according to my research.
These last types of requests make the analysis of the judges Intel even more complicated factors. When a case has not yet been initiated, it is virtually impossible for a judge to predict whether the court will be receptive to the American discovery. And when a request involves multiple proceedings in multiple courts, judges typically simplify the analysis by requiring only one of the courts to be responsive.
A private actor involved in an international dispute can therefore claim that he plans to initiate a procedure that is not international arbitration to obtain the §1782 discovery. Once they have the evidence, they can use it anywhere, including in international arbitration which the Supreme Court has now declared prohibited.
ZF Automotive opens a window even as the Supreme Court closes a door to private international arbitration. And that window is likely to remain open because the Supreme Court rarely gets to hear cases involving §1782. Trial court judges have wide discretion to rule on discovery, so these cases are rarely successfully appealed all the way to the Supreme Court.
Section 1782 decisions also quickly become moot, because once the foreign proceeding is over, whether a request is granted or denied is irrelevant. So while explicit requests for international arbitration will now be denied, private actors may well be able to strategize around this restriction for some time to come.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Yanbai Andrea Wang is an assistant professor of law at the Carey Law School at the University of Pennsylvania, where she researches and teaches in the areas of civil procedure and transnational litigation, with an emphasis on the relationship between US and Chinese courts. .