ZF Automotive US, Inc. v. Luxshare, Ltd., 21-401 is currently pending before the Supreme Court, with oral arguments scheduled to be heard on March 23, 2022.
In short, this case concerns the narrow issue of whether 28 U.S.C. § 1782(a) applies to private international commercial arbitration as a foreign or international tribunal. 28 U.S.C. § 1782(a) authorizes federal district courts to assist in gathering evidence “for use in a proceeding in a foreign or international tribunal,” but there is presently a circuit court split as to whether this includes private commercial arbitration. The Supreme Court previously granted certiorari to consider this issue in Servotronics v. Rolls-Royce PLC, No. 20-794, cert. granted, 141 S. Ct. 1684 (2021), cert. dismissed, No. (R46-44 / OT 2020), 2021 WL 4619271 (U.S. Sept. 29, 2021), but the case was dismissed on mootness grounds prior to the Court issuing a ruling.
Petitioners ZF Automotive US Inc. (ZF US) contended resolution of this issue warranted granting certiorari before the lower federal courts render a judgment, while Respondent Luxshare Ltd. (Luxshare) contended neither the case itself nor the narrow question of civil procedure presented, merit granting certiorari where no judgment has yet been rendered by the Sixth Circuit.
As a reminder, this matter has also been consolidated for decision with AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, which poses a slightly different question of whether an arbitration between an investor and a foreign state constitute a “foreign or international tribunal” under § 1782. This article provides additional background on the facts and procedure.
This case arises out of a dispute between Luxshare, a Hong Kong limited liability company, engaged in manufacturing of consumer electronics, communications, and automotive products, and ZF US, a Michigan-based manufacturer of automotive parts (along with individual Petitioners who are likewise Michigan residents).
In August 2017, Luxshare spent approximately $1 billion to acquire two business units from ZF US, and the parties closed the German-law governed purchase agreement in April 2018. The agreement required the parties arbitrate their claims in Munich, Germany, pursuant to the fast-track Supplementary Rules for Expedited Proceedings of the Arbitration Rules of the German Institution of Arbitration (DIS Rules). Under the agreement, any request for arbitration was to be filed by December 31, 2021 to avoid statute of limitations issues.
Subsequent to executing the agreement, Luxshare learned ZF US allegedly concealed material negative facts concerning a number of the newly acquired business’ customers, which Luxshare contended violated the German law governing their agreement, and inflated the purchase price by hundreds of millions of dollars.
Litigation in Lower Courts
In October 2020, Luxshare filed an ex parte application for discovery (in the form of subpoenas) pursuant to 28 U.S.C. § 1782(a) in the United States District Court for the Eastern District of Michigan, which the court granted. ZF US then filed a motion to quash the subpoenas served by Luxshare in May 2021, in part on the grounds that the DIS arbitration did not constitute a “tribunal” as contemplated by § 1782(a). A magistrate judge partially granted and partially denied this motion, and the district court affirmed the judge’s decision. Specifically, the lower court held that § 1782 did not require the denial of the discovery, but that the document production was to be limited by deleting portions, narrowing the time frame, and restricting the universe of documents to be searched. ZF US then filed an appeal to the Sixth Circuit, which conclusively considered the DIS arbitration a tribunal under its circuit precedent. While this appeal was still pending, the Petitioner then appealed to the United States Supreme Court.
Luxshare’s Reasons for Denying the Petition
Luxshare initially presented a number of reasons opposing the Petition for writ of certiorari before a final judgment had been rendered.
Luxshare contended that determination of whether § 1782(a) applied in the context of a foreign arbitral proceeding is not the type of question implicating matters of imperative public importance or “great constitutional significance” such as traditionally have warranted granting certiorari before judgment. S. Shapiro, et al., Supreme Court Practice § 4.20 (11th ed. 2019, online) (collecting cases). Luxshare argued even in cases where the Court had granted certiorari before judgment, the “the public interest in a speedy determination” must be sufficiently “exceptional” to “warrant skipping the court of appeals in this fashion.” Id. Luxshare compared cases where the Court granted certiorari before judgment, such as litigation regarding Watergate, wartime commandeering of the national steel industry, and the Iranian hostage crisis, with the present facts where only a question of civil procedure is raised and argued that this case did not amount to the “exceptional” standard.
Luxshare argued the Court had most frequently chosen to deny certiorari before judgment, and may later chose to grant certiorari after a decision had been rendered by the lower courts. Accordingly, Luxshare stated any argument regarding the need to resolve a circuit court split would actually favor the argument of granting certiorari after judgment, not before.
Next, Luxshare argued granting certiorari before the lower court issued a judgment was not appropriate in the Servotronics case, which had been dismissed, even though the question presented in Servotronics and the present case are the same. Although the Court had previously granted certiorari before judgment where a similar question was before the Court in another case, none of the previous decisions involved granting certiorari where the prior case had been dismissed, as is the case here. Additionally, in the few cases where the Court chose to grant certiorari before judgment on a related issue, the cases were typically heavily interwoven. Per the Opposition Brief, the only connection between Servotronics and the present case was the issue of 28 U.S.C. §1782(a); otherwise, the two did not arise out of a single common event or involve overlapping parties. Thus, Luxshare argued granting certiorari before judgment was not merited here.
Luxshare further asserted the present case was not the proper vehicle to address the applicability of 28 U.S.C. §1782(a), as ZF US claimed three separate errors were committed by the federal district court, each of which warranted vacating the order granting discovery pursuant to 28 U.S.C. §1782(a), even if the Court ultimately determined §1782(a) did in fact encompass private commercial arbitral tribunals. Therefore, even if the Court issued a ruling on §1782(a), Luxshare contended it would not be dispositive to the outcome of this case, and nothing more than an advisory opinion.
Finally, Luxshare contended in its Opposition Brief that the case will become moot, because under the arbitration agreement, it would need to file its arbitration request by December 31, 2021, after which ZF US would answer, the parties would each present one written submission, and participate in a single oral hearing. The tribunal would then issue an award within six months. Because of this expedited time frame, Luxshare argued the Court would not be able to render a decision on the §1782(a) issue in time for it to be used before the arbitral tribunal, particularly if ZF US choose to seek remand based on one of the other claimed reasons for vacating the order compelling discovery.
Rather than granting certiorari to determine the applicability of §1782(a) in this case, Luxshare offered other cases either pending before various courts of appeals, or recently decided, in support of its contention that another case would more appropriately determine this issue. Specifically, the Opposition presented AlixPartners, LLP v. The Fund for Protection of Investor Rights in Foreign States, pet. for cert. docketed, No. 21-518 (Oct. 7, 2021), which likewise considers the issue of §1782(a). In fact, the Court has not consolidated these cases together for determination.
Developments Subsequent to Filing its Opposition
After Luxshare filed the Opposition Brief, ZF US unconditionally waived their right to invoke the statute of limitations while the Court considers this case. ZF US also waived their right to abide by the six-month decision deadline for the arbitration decision, so that Luxshare would be able to take advantage of any favorable ruling from the Court upholding its right to discovery. Therefore, it appears this argument no longer has merit.
Additionally, the Sixth Circuit denied ZF US’s unopposed motion for summary affirmance on November 4, 2021, on purely procedural grounds, noting the court generally did not consider the merits of an appeal in a summary fashion. ZF US claimed this procedural denial did not undermine the case for certiorari, because the Sixth Circuit precedent clearly stated §1782(a) governs, and therefore a formal judgment was not required, as Luxshare necessarily would prevail under circuit precedent. After the denial, ZF US filed their Sixth Circuit merits brief, conceding that under this precedent, the district court’s order must be affirmed.
The U.S. Supreme Court then granted the petition on December 10, 2021, and consolidated the case with AlixPartners, LLP v. The Fund for Protection of Investor Rights in Foreign States, the case cited by Luxshare. Both cases will be heard together.