US discovery in support of arbitration

Introduction

Two recent decisions have further defined the landscape around US discovery in support of arbitrations. In June 2022, the Supreme Court issued a decision in ZF Automotive US, Inc. v. Luxshare, Ltd. (ZF Automotive) and AlixPartners, LLP v. The Fund for Protection of Investors’ Rights in Foreign States (AlixPartners) holding that “only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U.S.C. §1782.” This decision effectively precludes the use of Section 1782 in commercial international arbitration.

Then, in August 2022, the Ninth Circuit issued a unanimous decision in Jones Day v. Orrick, Herrington & Sutcliffe (Jones Day), ordering that under the general Federal venue statute in the US, 28 U.S.C. § 1391, two Orrick partners had to comply with an arbitrator’s subpoena in a venue other than the seat of arbitration. This decision may provide alternative means of obtaining discovery.

ZF Automotive and AlixPartners

Section 1782 permits parties to obtain discovery in the United States in aid of non-U.S. legal proceedings stating:

“(a) The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.”

In 1999, the Second and Fifth Circuits held that Congress had not intended private commercial arbitrations to fall within the scope of “foreign or international tribunal”. See National Broadcasting Co. v. Bear Stearns & Co. (NBC), 165 F.3d 184, 188, 190–91 (2d Cir. 1999); Republic of Kazakhstan v. Biedermann Int’l (Biedermann), 168 F.3d 880, 881–83 (5th Cir. 1999).

Then, in Intel Corp v Advanced Micro Devices, Inc (Intel), 542 U.S. 241 (2004), the Supreme Court recognized the Directorate–General for Competition of the Commission of the European Communities as a “tribunal” because it acted as a first-instance decision-maker. Post-Intel, some Circuits shifted away from NBC and Biedermann, relying on the Intel dicta to hold that discovery could be ordered for private commercial arbitrations abroad. 

In ZF Automotive, the lower court granted in part discovery requested by Luxshare in support of a proceeding before the German Institution of Arbitration, holding that it was bound by precedent that “the word ‘tribunal’ in § 1782(a) encompasses private, contracted-for commercial arbitrations of the type at issue here[.]” 

In AlixPartners, the Fund for Protection of Investors’ Rights in Foreign States initiated an ad hoc UNCITRAL arbitration against Lithuania under a treaty between the Government of the Russian Federation and Lithuania. It then initiated Section 1782 proceedings against AlixPartners.  The lower court found the nature of the arbitration—a treaty arbitration—was the type of proceeding that Congress intended to encompass under Section 1782.  

The Supreme Court reversed both decisions holding “only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U.S.C. §1782” and that a “foreign tribunal” is a tribunal imbued with governmental authority by one nation, and an “international tribunal” is a tribunal imbued with governmental authority by multiple nations. The Court noted its concern that “[e]xtending §1782 to include private bodies would also be in significant tension with the FAA, which governs domestic arbitration, because §1782 permits much broader discovery than the FAA allows. Interpreting §1782 to reach private arbitration would therefore create a notable mismatch between foreign and domestic arbitration.” 

Jones Day

Section 204 of the FAA  provides that “an action or proceeding over which the district courts have jurisdiction… may be brought in any such court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be brought…”28 U.S.C. § 1391(b) states “A civil action may be brought in—(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located[.]” 

A dispute arose between Jones Day and one of its former partners, now at Orrick. The Jones Day partnership agreement provided for arbitration of disputes, seated in Washington, DC governed by the FAA. The arbitrator issued a subpoena to two partners at Orrick. Orrick failed to comply and Jones Day filed an enforcement motion in Washington, DC – where the arbitration was seated. The court dismissed that motion for lack of personal jurisdiction since Orrick’s principal place of business is in San Francisco. The court held that Section 7 of the FAA required Jones Day to bring the action in the jurisdiction in which the arbitration is seated: “arbitrators…may summon in writing any person…if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court…in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person…” 

The arbitrator then agreed to sit for a hearing in Northern California, where Orrick has its principal place of business, and issue its subpoena from that district. Orrick again refused to comply, and Jones Day filed an enforcement motion in Northern California. Like its Washington, DC counterpart, the Northern California court denied the enforcement motion under Section 7 of the FAA, which it construed to limit an arbitrator’s enforcement powers to the district in the arbitration is seated (i.e., Washington, DC). 

The Ninth Circuit has overruled that decision interpreting Section 204 of the FAA as containing a venue provision applicable to proceedings related to the arbitration: those actions or proceedings “may be brought in any such [district] court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be brought, or in such court for the district and division which embraces the place designated in the agreement as the place of arbitration if such place is within the United States.” 

The Ninth Circuit refused to interpret Section 7 in a way which would create a “venue gap”, i.e., where there would be no venue in the US in which the dispute could be heard, in spite of the fact that there is clearly jurisdiction. It held that Section 204 of the FAA supplements, and does not supersede Section 1391, which “ensures that so long as a federal court has personal jurisdiction over the defendant, venue will always lie somewhere.” Applying the general Federal venue statute, the Ninth Circuit concluded that Northern California was a proper venue because it is Orrick’s principal place of business and enforced the subpoena.

Conclusion

These two recent decisions have provided arbitration practitioners with additional considerations when initiating discovery in the United States. In ZF Automotive/AlixPartners, the Supreme Court’s holding that only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” will chill the use of Section 1782 in international commercial arbitrations. However, the Ninth Circuit’s unanimous decision in Jones Day ordering that Section 204 of the FAA supplements and does not supersede the Federal venue statute, could provide an alternate avenue for pursuing discovery in the United States.