Supreme Court Agrees to Hear Chinese Manufacturer’s Lawsuit Against US Auto Parts Maker

The Supreme Court is seen in Washington, on June 8, 2021. J. Scott Applewhite/AP Photo

The Supreme Court agreed to resolve whether parties in private arbitration outside the country are able to use U.S. courts to compel the production of evidence.

The decision to grant the petition for certiorari, or review, on Dec. 10 in ZF Automotive US Inc. v. Luxshare Ltd., came after the high court blocked a lower court’s order in the legal proceeding on Oct. 27. That order would have forced a Michigan company to hand over documents to a Chinese manufacturer disputing the value of the assets of a business unit in the company’s German parent company that it purchased in 2017.

On Dec. 10, the court ordered the case consolidated with AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, a similar case it had also agreed to hear.

The Supreme Court decided to grant certiorari before the 6th U.S. Circuit Court of Appeals had ruled on the case, “in a rare procedural move,” according to the law firm of Cleary Gottlieb.

The decision “effectively allow[s] the parties to sidestep the Sixth Circuit and have the Supreme Court decide whether Section 1782 permitted discovery for use in a private commercial arbitration proceeding.”

In the ZF Automotive case, the Supreme Court is being asked to settle a split between federal appellate courts. The specific legal issue is whether Section 1782 of Title 28 of the U.S. Code, which allows parties to lawsuits to invoke the authority of U.S. courts to aid in the gathering of evidence to be used in “a foreign or international tribunal,” covers private commercial arbitration tribunals. The appellate courts for the 4th and 6th circuits held that it does; the 2nd, 5th, and 7th circuits held that it doesn’t.

The Supreme Court was recently poised to consider such a question, but the parties in Servotronics Inc v. Rolls-Royce PLC settled the case out of court. That case had been scheduled for oral argument on Oct. 5, but the high court dismissed the legal proceeding on Sept. 29 on consent of the parties.

Michigan-based ZF Automotive manufactures automotive parts. China-based Luxshare manufactures consumer electronics and automotive products. Luxshare is sometimes called “little Foxconn,” after Taiwan-based Foxconn, an electronics contract manufacturer in the Apple supply chain that has a large number of Chinese supplier locations.

A dispute arose after Luxshare acquired a business unit of ZF Friedrichshafen AG, the German parent company, for about $1 billion in 2017. Luxshare argued it had been 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 Institution of Arbitration.

A U.S. District Court in Detroit cited current precedent from the 6th Circuit, within whose geographic boundaries the Michigan subsidiary is located. The precedent holds that private arbitration is within the scope of Section 1782. The District Court approved Luxshare’s request to subpoena ZF Automotive, a subsidiary of the German company, ordering it to hand over documents to Luxshare.

Luxshare had demanded the documents before possibly taking the dispute to private arbitration in Germany.

This case “presents an ideal vehicle by which the Court could resolve the longstanding circuit split and determine—once and for all—what Section 1782 means,” ZF Automotive stated in its petition (pdf) to the Supreme Court.

The Epoch Times reached out for comment to Roman Martinez, counsel of record for the petitioner ZF Automotive, and Andrew Rhys Davies, counsel of record for the respondent Luxshare, but neither had replied as of press time.