In private disputes from abroad, justices rule, US courts can not force testimony

WASHINGTON (CN) — In a unanimous decision on Monday, the Supreme Court said that federal courts that help international investigations cannot order testimony or evidence for use by private arbitration panels. 

A U.S. car manufacturer and a failed Lithuanian bank are the parties to the consolidated dispute before the court, which resolves a circuit split over whether the U.S. law governing foreign and international tribunals covers private arbitral panels. 

“These consolidated cases require us to decide whether private adjudicatory bodies count as ‘foreign or international tribunals.’ They do not,” Justice Amy Coney Barrett wrote for the court. “The statute reaches only governmental or intergovernmental adjudicative bodies, and neither of the arbitral panels involved in these cases fits that bill.” 

One of the disputes began after Michigan-based automotive parts manufacturer ZF Automotive US Inc. sold business units to Hong Kong-based Luxshare Ltd. for right under a billion dollars. Luxshare would later contend that ZF concealed information overvaluing the units. Per the sale contract, any dispute would be settled in Munich by way of the Arbitration Rules of the German Institution of Arbitration e.V. (DIS) — a private dispute-resolution organization based in Berlin. Luxshare nevertheless sought to compel information from ZF through a U.S. court. A U.S. federal judge granted Luxshare’s request and subpoenaed ZF. 

ZF claimed the subpoenas weren’t valid because DIS is a private organization, not a foreign or international tribunal. The Sixth Circuit denied ZF’s stay. The high court granted a stay and agreed to hear the case. 

In the second case, AB bankas SNORAS, a Lithuanian bank, was nationalized after it failed to meet its obligations, and Simon Freakley was appointed as a temporary administrator. Lithuanian authorities started bankruptcy proceedings and declared the bank insolvent after Freakely, the CEO of a New York-based consulting firm AlixPartners, issued a report on Snoras’ financial status. The Fund for Protection of Investors’ Rights in Foreign States — a Russian corporation representing a Russian investor in the bank — then claimed that Lithuania expropriated certain investments from Snoras. 

A bilateral investment treaty between Lithuania and Russia says that disputes between parties should be handled in the first contracting party’s territory. If the dispute isn’t resolved within six months, it is sent to a forum. 

During arbitration proceedings, the fund asked a court in New York to compel Freakley and AlixPartners to disclose information for the case. A U.S. federal judge granted the fund's request against the wishes of AlixPartners. The Second Circuit affirmed. 

Monday's reversal from the Supreme Court says that the language in the statute refers to governmental bodies. Barrett first breaks down what is meant by “foreign tribunal” and “international tribunal,” and finds they both mean tribunals imbued with governmental authority. She said this focus is confirmed by the statute’s history and a comparison to the Federal Arbitration Act. 

“Interpreting §1782 to reach only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” the Trump appointee wrote. “Seen in light of the statutory history, the amendment did not signal an expansion from public to private bodies, but rather an expansion of the types of public bodies covered. By broadening the range of governmental and intergovernmental bodies included in §1782, Congress increased the ‘assistance and cooperation’ rendered by the United States to those nations.”

The statue was created to promote respect for foreign governments and encourage them to do the same, Barrett said. There is not the same motivation to do so in cases involving private bodies. 

“After all, the animating purpose of §1782 is comity: Permitting federal courts to assist foreign and international governmental bodies promotes respect for foreign governments and encourages reciprocal assistance,” Barrett wrote. “It is difficult to see how enlisting district courts to help private bodies would serve that end.” 

Continuing with her analysis, Barrett said adjudicative bodies can not be considered governmental. 

“Governmental and intergovernmental bodies may take many forms, and we do not attempt to prescribe how they should be structured,” Barrett said. “The point is only that a body does not possess governmental authority just because nations agree in a treaty to submit to arbitration before it. The relevant question is whether the nations intended that the ad hoc panel exercise governmental authority. And here, all indications are that they did not.” 

Roman Martinez, an attorney from Latham & Watkins representing ZF, said the ruling will make sure private foreign parties can not take advantage of U.S. courts.

"As the Court made clear, Section 1782 is carefully limited to authorize discovery only for use in governmental and intergovernmental adjudicatory bodies, not purely private arbitrations abroad," Martinez said in a statement. "This opinion will ensure that parties to foreign commercial arbitrations will not be able to improperly take advantage of discovery in U.S. courts and will have immediate impact on a broad range of current and future international arbitrations." 

Joseph Baio, who represented AlixPartners and its CEO before the Supreme Court, said the ruling will align the international arbitration process with provisions of the Federal Arbitration Act.

“We are pleased with the Supreme Court’s unanimous decision that US citizens should no longer have to bear the burden and substantial expense of discovery for use in foreign and international arbitrations where they aren’t a party,” Baio, senior counsel at Willkie Farr & Gallagher, said in a statement. “Today’s ruling removes a huge burden for US citizens and will help streamline the foreign and international arbitration process, aligning it with provisions of the U.S. Federal Arbitration Act.”

Representing the fund, Alexander Yanos at Alston & Bird, declined to comment on the case. Andrew Davies from Allen and Overy representing Luxshare did not respond to a request for comment Monday.

Follow @KelseyReichmann

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