By Omer Er and Maggie Franz
In the world of international disputes, U.S. discovery processes have long been a double-edged sword. On the one hand, they offer an expansive toolkit for fact-finding; on the other, they present significant challenges for arbitration, a mechanism designed for efficiency and privacy. With the recent narrowing of 28 U.S.C. Section 1782—once a powerful tool for parties seeking discovery in aid of arbitration—the landscape for resolving international disputes is evolving rapidly.
For arbitrators, litigants, and practitioners, understanding these changes is critical to navigating discovery in a post-ZF Automotive era.
U.S. Discovery 101
The U.S. discovery process is markedly broader and more expansive compared to other countries, making it a unique feature of its civil litigation system. Unlike many jurisdictions where judges oversee and control evidence-gathering, U.S. lawyers conduct discovery with significant autonomy, including taking oral depositions and requesting extensive document production. The scope of discovery is broad, allowing parties to request any information that might lead to admissible evidence, even if it establishes liability against the producing party—a concept often restricted in other systems. For instance, while U.S. lawyers can compel the opposing party to produce incriminating documents, many civil law countries limit discovery to evidence supporting a party's own case and assign judges a gatekeeping role. Additionally, the U.S. heavily incorporates electronic discovery (e-discovery), requiring the production of electronically stored information like emails and metadata, a process less common or developed abroad. While this liberal approach promotes transparency and thorough preparation, it also significantly increases costs and complexity, contrasting with the more streamlined, judge-controlled discovery processes in other jurisdictions, which prioritize efficiency and cost reduction.
The Power—and Limits—of U.S. Discovery in International Disputes
U.S. discovery is renowned for its breadth and reach, allowing parties to compel testimony, request documents, and unearth evidence that can make or break a case. This expansive approach stands in stark contrast to the narrower discovery mechanisms found in many other legal systems, making U.S. courts an attractive venue for obtaining information, even for disputes rooted outside their borders.
Section 1782 of the U.S. Code historically facilitated this by allowing litigants in foreign or international proceedings to petition U.S. federal courts for discovery. Its appeal lay in the ability to access U.S.-based evidence without the cumbersome procedures of diplomatic letters rogatory. Over time, it became a favored tool for international arbitrations as well.
But the U.S. Supreme Court’s 2022 decision in ZF Automotive US v. Luxshare, Ltd. marked a pivotal shift. By ruling that Section 1782 only applies to tribunals “imbued with governmental authority,” the Court excluded private arbitration panels from its scope. This decision left many questions about where discovery for international arbitration stands now.
The Arbitration Conundrum Post-ZF Automotive
Arbitration thrives on principles of efficiency, confidentiality, and party autonomy. The decision in ZF Automotive reinforced the idea that arbitration, as a private dispute resolution mechanism, should not be subject to the broad, court-supervised discovery processes typically reserved for public tribunals. While this aligns with arbitration’s ethos, it presents challenges for parties who rely on U.S. evidence to support their claims.
For example, multinational companies often hold critical evidence within U.S. jurisdictions—documents, financial records, or emails crucial to the outcome of an arbitration. The narrowing of Section 1782 means parties must now look elsewhere to access such evidence.
The State Court Solution: New York and California Leading the Way
Although federal courts have restricted the use of Section 1782, state courts in New York and California provide alternative avenues for discovery. Both states allow pre-complaint discovery in aid of arbitration, albeit under stricter conditions than federal courts once offered.
- New York: Rule 3102(c) of the Civil Practice Law and Rules permits pre-complaint discovery to aid arbitration when a party can demonstrate necessity or “extraordinary circumstances.” For example, New York courts have ordered discovery to preserve evidence critical to an overseas arbitration, recognizing its potential impact on the arbitral process.
- California: The state’s Civil Procedure Code under Title 9.3 allows parties to request discovery assistance from state courts, provided the arbitral tribunal approves. This process ensures that state courts complement, rather than interfere with, arbitration proceedings.
For parties who can satisfy these requirements, state court discovery provides a valuable lifeline.
Despite these options, discovery in aid of arbitration remains inconsistent across the U.S. Most states lack explicit provisions allowing courts to assist with arbitration discovery. In some cases, statutes have been repealed or intentionally exclude arbitration. For example:
- Pennsylvania: Repealed its discovery provision for foreign tribunals, including arbitrations, in 2012.
- Texas and Florida: Allow pre-complaint discovery to preserve testimony for court cases but make no mention of arbitration, reflecting a broader reluctance to intervene in private dispute mechanisms.
This patchwork of rules may cause uncertainty for international litigants, underscoring the importance of understanding jurisdiction-specific discovery laws.
The Way Forward for International Arbitration
As parties adapt to the post-ZF Automotive landscape, strategic solutions are essential for overcoming discovery challenges. Here’s how arbitration practitioners can navigate this evolving terrain:
Leverage State Courts Where Possible
Familiarity with state-specific rules, particularly in arbitration-friendly jurisdictions like New York and California, is crucial for accessing U.S.-based evidence. Both states allow pre-complaint discovery in support of arbitration under specific circumstances, offering a valuable alternative when federal courts are unavailable.
Draft Tailored Arbitration Agreements
Parties should proactively address discovery needs during contract negotiations by including tailored provisions for evidence gathering. For example, specifying mechanisms for document production or interim relief can prevent uncertainty and reliance on judicial interpretation.
Explore Parallel Litigation Applications
Parallel litigation can be a powerful tool for parties seeking interim relief or addressing discovery challenges in arbitration. Courts can provide remedies that arbitral tribunals may lack the authority to enforce, offering a practical solution for preserving rights and securing compliance. For instance:
Preliminary Injunctions: These orders can prevent the destruction of evidence or ensure that critical information remains available for arbitration proceedings.
Attachments and Freezing Orders: These measures secure assets or preserve evidence at risk of being hidden or dissipated before a tribunal can act.
Pursue Alternative Evidence Sources
When U.S.-based discovery is unavailable or restricted, parties should explore other avenues, such as:
- Letters Rogatory: Requesting judicial assistance through diplomatic channels to obtain evidence from foreign jurisdictions.
- Arbitral Tribunal Orders: Seeking evidence directly under the procedural rules of the arbitration institution or tribunal.
These methods may require careful navigation of cross-border legal systems but can yield critical results when local discovery options are insufficient.
Monitor Evolving Case Law
The interpretation of Section 1782 and related discovery rules continues to evolve. For example, courts are clarifying the boundaries of what constitutes a “tribunal imbued with governmental authority.” Staying informed about these developments is essential to identify emerging opportunities or mitigate risks.
Conclusion
The restrictions imposed by ZF Automotive have reshaped the discovery landscape for international arbitration, but they also invite innovative strategies. By leveraging state courts, drafting robust arbitration agreements, employing parallel litigation for interim relief, and exploring alternative evidence sources, parties can adapt effectively to these challenges.
The key to success lies in a proactive and adaptable approach. International arbitration remains a cornerstone of global dispute resolution, and practitioners who navigate these evolving dynamics skillfully will ensure that their clients are well-positioned in any forum.
