The U.S. Supreme Court unanimously ruled on June 13 that a Chinese manufacturer is not allowed to use the U.S. legal system to compel the production of evidence in a private arbitration taking place overseas.
The high court held that federal district courts are unable to compel discovery in an arbitration case outside the United States governed by a private organization, even when an international treaty makes discovery a possibility, unless the nations in the treaty intended the arbitration panel to possess governmental authority.
The decision comes in a complex case pitting a Hong Kong-based company against a U.S. automobile parts manufacturer.
Luxshare, a Hong Kong limited liability company, manufactures consumer electronics, communications, and automotive products. Luxshare is sometimes called “little Foxconn,” after Taiwan-based Foxconn, a contract manufacturer of electronics in the Apple supply chain that has a large number of Chinese supplier locations.
Livonia, Michigan-based ZF Automotive manufactures automotive parts and industrial technology.
Luxshare is disputing the value of assets of a business unit in ZF’s German parent company, ZF Friedrichshafen AG, that Luxshare purchased in 2017 for about $1 billion. Luxshare claims it was misled about the profitability of two of ZF’s businesses. The deal stipulated that disputes would be resolved according to the rules of the German Arbitration Institute, which goes by the German acronym DIS.
A U.S. District Court in Detroit approved a request to subpoena ZF Automotive, ordering it to hand over the relevant documents to Luxshare.
But the Supreme Court granted the petition in ZF Automotive U.S. Inc. v. Luxshare Ltd., court file 21-401, on Dec. 10, 2021, sidestepping the U.S. Court of Appeals for the 6th Circuit before it had ruled on the case. Before that, on Oct. 27, 2021, the Supreme Court also blocked the lower court’s order compelling ZF Automotive to produce the documents demanded by Luxshare.
Oral arguments in the ZF Automotive case, which was consolidated with AlixPartners v. Fund for Protection of Investor’s Rights, court file 21-518, were heard on March 23.
“Congress has long allowed federal courts to assist foreign or international adjudicative bodies in evidence gathering,” Barrett wrote.
“The current statute, 28 U.S.C. §1782, permits district courts to order testimony or the production of evidence ‘for use in a proceeding in a foreign or international tribunal.’ These consolidated cases require us to decide whether private adjudicatory bodies count as ‘foreign or international tribunals.’ They do not. The statute reaches only governmental or intergovernmental adjudicative bodies, and neither of the arbitral panels involved in these cases fits that bill.”
Governments may give official authority to an ad hoc arbitration panel, but “just because nations agree in a treaty to submit to arbitration before it” doesn’t mean the body possesses governmental authority, according to Barnett.
“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,” she wrote.
Counsel for ZF Automotive, Roman Martinez V, was pleased with the ruling.
“We are thrilled with today’s decision,” Martinez said in an emailed statement.
“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. 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.”
Alex Yanos, counsel for the Fund for Protection of Investor’s Rights, told The Epoch Times by email: “No comment from our end.”
The Epoch Times also reached out to counsel for Luxshare, Andrew Rhys Davies, but didn’t receive a reply as of press time.
