Luxshare, Ltd. v. ZF Auto. US, Inc.

555 F.Supp.3d 510

LUXSHARE, LTD., Petitioner,

v.ZF AUTOMOTIVE US, INC., et al., Respondents.

Case No. 20-mc-51245

United States District Court, E.D. Michigan, Southern Division.

Signed August 17, 2021

Bradley Pensyl, Kendall Robert Pauley, Allen & Overy LLP, New York, NY, William R. Jansen, Michael G. Brady, Warner Norcross & Judd LLP, Detroit, MI, for Petitioner.

Herbert C. Donovan, Jonathan F. Jorissen, Brooks Wilkins Sharkey & Turco, PLLC, Birmingham, MI, Sean M. Berkowitz, Latham & Watkins, Chicago, IL, for Respondents.

OPINION AND ORDER DENYING MOTION TO STAY [30] AND GRANTING MOTION TO COMPEL [31]

LAURIE J. MICHELSON, UNITED STATES DISTRICT JUDGE

As a result of a business dispute involving hundreds of millions of dollars in potential damages, Luxshare, LTD intends to initiate, by the end of the year, an arbitration proceeding in Munich, Germany against ZF Automotive US, Inc. Luxshare came to this federal court in the Eastern District of Michigan pursuant to 28 U.S.C. § 1782 seeking discovery for the arbitration from ZF US and two of its senior officers who reside in the District.

Some procedural history tees up the motion now before the Court. This Court referred Luxshare's petition to Magistrate Judge Anthony P. Patti. He reviewed the briefing, conducted an extensive hearing, and requested supplemental briefing, before ultimately granting discovery in limited scope. Judge Patti permitted Luxshare to obtain limited email production and to take one deposition. (ECF No. 26.) ZF US filed objections to Judge Patti's opinion and order, which this Court reviewed under an abuse of discretion standard. The Court found no legal error or abuse of discretion in Judge Patti's order and overruled ZF US's objections. (ECF No. 29.) Even so, ZF US has not produced any discovery materials; instead it filed a motion to stay. (ECF No. 30.) On the same day, Luxshare filed a motion to compel. (ECF No. 31.) ZF US has since filed a notice of appeal (ECF No. 32) and a motion to stay with the Sixth Circuit, Motion, Luxshare, Ltd. v. ZF Automotive US, Inc. , No. 21-2736 (6th Cir. July 23, 2021). A few days later, the Sixth Circuit ordered ZF US to show cause why the appeal should not be dismissed for lack of jurisdiction.

Luxshare, Ltd. v. ZF Automotive US, Inc. , No. 21-2736 (6th Cir. July 27, 2021) (show cause order). ZF US has filed a response, but the Sixth Circuit has not yet ruled. See Response, Luxshare, Ltd. v. ZF Automotive US, Inc. , No. 21-2736 (6th Cir. July 30, 2021).

In the meantime, ZF US's motion to stay and Luxshare's motion to compel are before this Court. For the reasons that follow, the Court denies ZF US's motion to stay. The Court grants Luxshare's motion to compel and orders ZF US to produce the discovery within 14 days of a ruling from the Sixth Circuit denying the motion to stay or dismissing the appeal.

I. The Motion to Stay

The Court begins with ZF US's motion to stay the case pending appeal. This Court has discretion to stay its ruling and ZF US "bears the burden of showing that the circumstances justify an exercise of [ ] discretion." Nken v. Holder , 556 U.S. 418, 433-34, 129 S.Ct. 1749, 173 L.Ed.2d 550 (2009). The Court considers four factors to determine whether a stay should be issued pending appeal: (1) whether the stay applicant has made a strong showing that it is likely to succeed on the merits on appeal; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) whether the public interest is served. Hilton v. Braunskill , 481 U.S. 770, 776, 107 S.Ct. 2113, 95 L.Ed.2d 724 (1987) ; JSC MCC EuroChem v. Chauhan , No. 18-5890, 2018 WL 9650037, at *1 (6th Cir. Sept. 14, 2018).

A.

For a stay pending appeal, the first factor, likelihood of success on the merits, essentially asks whether there is "a likelihood of reversal." Michigan Coal. of Radioactive Material Users, Inc. v. Griepentrog , 945 F.2d 150, 153 (6th Cir. 1991). To justify a stay the movant "need not always establish a high probability of success on the merits." Michigan Coal. , 945 F.2d at 153 (internal citations omitted). But the "probability of success that must be demonstrated is inversely proportional to the amount of irreparable injury plaintiffs will suffer absent the stay" and the movant is "always required to demonstrate more than the mere possibility of success on the merits." Id. (internal citations and quotation marks omitted). As will be discussed below, ZF US has not demonstrated any irreparable harm, so it needs to show a high likelihood of success on this factor.

ZF US argues that it has a likelihood of success on the merits of its appeal because (1) the Supreme Court has granted review of a case involving the same key issue presented in this case, and (2) ZF US's appeal to the Sixth Circuit involves issues of first impression.

In March 2021, the Supreme Court granted certiorari in Servotronics, Inc. v. Rolls-Royce PLC to address a circuit split over whether § 1782 encompasses private commercial arbitral tribunals. Servotronics, Inc. v. Rolls-Royce PLC , ––– U.S. ––––, 141 S. Ct. 1684, 209 L.Ed.2d 463 (2021). If § 1782 does not encompass private commercial arbitral tribunals, Luxshare would not be entitled to the discovery granted in this case.

But the current law in the Sixth Circuit is that § 1782 discovery may be used for private commercial arbitrations. See Abdul Latif Jameel Trans. Co. Ltd. v. FedEx Corp. , 939 F.3d 710, 723 (6th Cir. 2019). The Supreme Court's grant of certiorari in Servotronics does not change this binding precedent. See In re Bradford , 830 F.3d 1273, 1275 (11th Cir. 2016) ("[G]rants of certiorari do not themselves change the law, and must not be used by courts as a basis to grant relief that would otherwise be denied." (internal citation and quotation marks omitted)). So if the Sixth Circuit rules on ZF US's appeal based on the current binding precedent, ZF US has very little likelihood of success on the merits.

Another possibility is that the Sixth Circuit will not decide ZF US's appeal until after the Supreme Court's ruling in Servotronics . But even considering the possibility that the Sixth Circuit law could change as a result of the Supreme Court's ruling, many unknowns remain. At this point, it is not even clear that the case will be heard by the Supreme Court as scheduled in October 2021. The respondents in Servotronics recently filed a brief arguing that the case has become moot and asking the Supreme Court to dismiss the case. (ECF No. 35, PageID.824) (citing Brief for Respondent at 12-14, Servotronics, Inc. v. Rolls-Royce PLC , No. 20-794 (June 21, 2021).) Even if the case is heard in October, the decision could come as late as June 2022, six months after Luxshare's deadline to initiate arbitration that will be expedited. And of course, the Supreme Court may interpret § 1782 as the Sixth Circuit has. Luxshare raises an additional relevant piece of information: In the parallel Servotronics case decided by the Fourth Circuit, the Supreme Court recently declined to stay the Fourth Circuit's order allowing discovery under § 1782. See Rolls-Royce PLC v. Servotronics, Inc. , ––– U.S. ––––, 141 S.Ct. 2588, ––– L.Ed.2d –––– (2021).

In sum, Sixth Circuit law controls unless the Supreme Court says otherwise. Under current Sixth Circuit law, ZF US has little likelihood of success. And the Supreme Court may not say otherwise until after the arbitration takes place or the Sixth Circuit rules on ZF US's appeal. Moreover, it may not say otherwise at all, and instead adopt the view of the Sixth Circuit. So the grant of certiorari only shows that ZF US has, at best, a possibility, not a likelihood, of succeeding on appeal.

ZF US's second likelihood-of-success argument fares no better. ZF US argues that it can satisfy the likelihood-of-success factor simply by showing that there are substantial legal questions or matters of first impression at issue. (ECF No. 30, PageID.734.) But this is not a position endorsed by the Sixth Circuit. Even on questions of first impression, ZF US must demonstrate a likelihood of reversal to a degree inversely proportional to the irreparable harm it would suffer absent a stay. See Michigan Coal. , 945 F.2d at 153. Again, as discussed below, ZF US has not demonstrated any irreparable harm, so it would need to show a high likelihood of success on this factor.

To determine ZF US's likelihood of success, it is important to consider the standard of review. A district court's authorization of discovery under § 1782 is reviewed for an abuse of discretion. JSC , 2018 WL 9650037, at *1. "An abuse of discretion occurs only ‘when the district court relies on clearly erroneous findings of fact, ... improperly applies the law, ... or ... employs an erroneous legal standard.’ " Id. (quoting Barner v. Pilkington N. Am., Inc. , 399 F.3d 745, 748 (6th Cir. 2005) ).

Considering ZF US's three supposed questions of first impression under the abuse of discretion standard, ZF US has not shown a likelihood of success on any of them. For the first two issues, ZF US does not allege that the Court made a clearly erroneous finding of fact or an incorrect legal ruling, so it has not shown any likelihood that the Sixth Circuit would overrule the Court's order on either of these bases.

For the third issue, ZF US does argue that the Court employed the wrong legal standard by reviewing the magistrate judge's decision under the "clearly erroneous or contrary to law" standard. (ECF No. 30, PageID.739.) ZF US argues that the magistrate judge's decision should be considered dispositive and thus must be reviewed de novo. (Id. ) True, the Sixth Circuit has not ruled on this question. But in its own order, this Court considered this question and noted that although no appellate court has addressed the issue, most lower courts have found that such rulings are not dispositive. Luxshare, LTD. v. ZF...