Pre-Hearing Third Party Discovery in Arbitration

by | Nov 10, 2020 | The ADR Blog | 156 comments

By William D. Gilbride Jr.

Published: ADR Spotlight October 2020

What is the authority of an arbitrator to issue third-party subpoenas for the pre-hearing production of documents and to compel deposition testimony in a matter where the parties’ inter se arbitration agreement expressly invokes the Federal Rules of Civil Procedure?

Based on the following authorities, an arbitrator may be authorized by law to issue non- party subpoenas for both the production of documents and to compel deposition testimony in certain cases.

It has become more commonplace in arbitration agreements that the parties are expressly authorized to conduct pre-hearing discovery through the issuance of subpoenas to third parties for documents and testimony. For example, a typical discovery clause may provide, “each party shall have the right to conduct discovery in any manner and to the extent authorized by the Federal Rules of Civil Procedure as interpreted by federal courts. If there is a conflict between those Rules and the provisions of this section, the provisions of this section shall prevail.”

The Federal Rules of Civil Procedure clearly provide the right for parties to obtain discovery from non-party witnesses in the form of document requests and deposition testimony. See FRCP 30(a)(1) (Depositions); FRCP 34(c) (Document Production from Non-Parties); FRCP 45 (Subpoena).

Thus, by invoking the Federal Rules by contract into the arbitration agreement, parties are expressing an intent to empower the arbitrator to permit, compel and oversee third party discovery in accordance with Federal practice.

Authority for the Arbitrator’s issuance of non-party, pre-hearing subpoenas is also found in the AAA Commercial Rules, which Rules are frequently incorporated into the parties’ arbitration agreement. For example, Rule 34 provides, “[a]n arbitrator or other person authorized by law to subpoena witnesses or documents may do so upon the request of any party or independently.” The AAA’s Commercial Rules for “large, complex cases” include “[b]road arbitrator authority to order and control the exchange of information, including depositions.” Commercial Rules, p. 9 (emphasis added). Rule 34 also includes the power–in exceptional cases and upon the showing of good cause–to “order depositions to obtain the testimony of a person who may possess information determined by the arbitrator to be relevant and material to the outcome of the case.” L-3(f) (emphasis added).

Based on the express language of the parties’ agreement to engage in broad discovery in accordance with the Federal Rules of Civil Procedure, along with AAA rules, it appears that the Arbitrator may have authority to subpoena non-parties to produce documents and appear for deposition. But, what have the courts ruled in such cases?

Some case law exists holding that the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. (“FAA”) alone, does not authorize pre-arbitration discovery, however those cases are distinguishable from cases in which the parties have expressly empowered themselves and the arbitrator to conduct/oversee third-party discovery in accordance with the Federal Rules of Civil Procedure.

While it is well-established that, under the FAA, an arbitrator has the power to summon third-party witnesses to provide testimony and produce documentation at a hearing, see 9 U.S.C. § 7, there is presently a split among the circuits as to whether non-parties can be compelled by a court to provide documents and/or testimony prior to the arbitration hearing.

The Sixth and Eighth Circuits have held that parties to an arbitration should be able to take discovery from third parties in advance of any arbitration. See Security Life Ins Co. of Am. v. Duncanson & Holt Inc., 228 F.3d 865, 970-971 (8th Cir. 2000) (holding that, although the language of Section 7 is unclear, “implicit in an arbitration panel’s power to subpoena relevant documents for production at a hearing is the power to order the production of relevant documents for review by a party prior to the hearing” when a nonparty was “integrally related to the underlying arbitration.”); see also Television and Radio Artists v WJBK-TV, 164 F.3d 1004, 1010 (6th Cir. 1999). The Fourth Circuit has taken the position that, while Section 7 of the FAA does not empower an arbitrator to issue prehearing discovery subpoenas to nonparties, an arbitrationpanel might be able to subpoena a nonparty for prehearing discovery “under unusual circumstances” and “upon a showing of special need or hardship.” COMSAT Corp v Natl. Science Foundation, 190 F.3d 269, 275-276 (4th Cir. 1999).

The Third, Second and Ninth Circuits, however, have taken a more restrictive approach and have held that the FAA does not grant arbitrators the power over third parties to produce documents or appear in advance of the arbitration hearing. See, e.g., Hay Group Inc. v E.B.S. Acq. Corp., 360 F.3d 404 (3rd Cir. 2004); Stolt-Nielsen SA v Celanese AG, 430 F.3d 567 (2d Cir. 2005); CVS Health Corp v Vividus LLC, 878 F.3d 703 (9th Cir. 2017). However, despite these restrictive views, the Second and Third Circuits have recognized that third-party evidence may be obtained in advance of the arbitration hearing so long as the evidence is taken before the arbitrator. See Stolt-Neilsen, 430 F.3d at 577-578 (holding that the arbitration panel had the authority to compel a third-party to testify and produce documents in advance of the full merits hearing so long as the evidence was taken before the arbitration panel); see also, Hay Group, 360 F.3d at 413 (concurring opinion).

The cases expressing the more restrictive views may not preclude discovery in a case in which the parties’ arbitration agreement expressly invokes full discovery under the Federal Rules of Civil Procedure – a factor that is not present in the cases outlined above: neither the Hay Group, Stolt-Nielsen, nor CVS Health Corp involved arbitration agreements in which the parties created an express contractual right to discovery co-extensive with that which is permitted under the Federal Rules of Civil Procedure. Given this distinguishing factor, the more restrictive view of pre-arbitration discovery (for both production of documents and depositions) may not prevent discovery in cases in which the parties have agreed to it.

Furthermore, even if it is determined that a case is pending in a jurisdiction that follows the more restrictive view of pre hearing discovery from third parties, the arbitrator is likely permitted under the law in all circuits that have addressed the issue to compel third-party pre-arbitration production, so long as the evidence is taken before the arbitrator.

Given the existent authority, counsel should be cognizant of the potential for pre-hearing third party discovery when drafting or enforcing agreements to arbitrate.

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