Efficient Arbitration, Part IV: Non-Party Discovery

shutterstock_139897957In the earlier articles in the series we addressed the main thing that makes arbitrations expensive: discovery.  As arbitration expanded over the years, many lawyers who were used to litigation-style discovery got involved. They demanded – and often got – litigation-style discovery with its attendant expense.  We have been exploring ways to get the parties the information they need to present their positions, but cut down on unnecessary expense and effort in getting it.  This includes limiting document discovery and e-discovery to the specific needs of the case and limiting depositions to those that are actually necessary.

So far we have been focusing on discovery between or among the parties to the arbitration.  We now take up non-party discovery.

There are a few things to keep in mind at the outset to help you plan any needed non-party discovery.  First, arbitrators have subpoena powers, but they are not the same as courts’ powers, and the power differs among jurisdictions.  Second, arbitrators can’t enforce subpoenas.  Courts must do that.  Third, because of the first and second things, some creativity may be necessary.

Arbitrator subpoena power in general

Most commercial arbitrations will be governed by the Federal Arbitration Act (“FAA”) because the issues typically involve interstate commerce.  The FAA preempts state law.

The FAA provides at 9 U.S.C. § 7 that arbitrators may “summon in writing” any person to “attend before them” as a witness and bring material documents.  The written summons is served in the same manner as a subpoena to appear and testify before a court.  So that is easy enough for arbitration hearings.  Arbitrators can issue subpoenas to require witnesses to appear and bring documents.

But what if they don’t appear?  The FAA also answers that in section 7.  The federal court in the district where the arbitration is being held can compel the attendance of the witness and can punish the witness for refusal to attend, just as if a court proceeding was involved.  Note the arbitrator can’t do that.  Arbitrators don’t have marshals, jails and the ability to charge fines.  But courts do.  The actual process to enforce the subpoena may be cumbersome, requiring a court filing and appearance.  But the power to subpoena is clear enough that witnesses will normally obey an arbitration subpoena.

Of course, not even a federal court can subpoena everybody anywhere.  Generally, a non-party witness can only be required to travel 100 miles, or within the state for a trial.  Fed. R. Civ. P. 45(c).  A witness outside that area isn’t subject to a subpoena issued by a court and also, presumably, not one issued by an arbitrator, either.

Discovery: documents

But what about discovery before the arbitration?  Different courts treat that differently.  For example, the Eighth Circuit has decided that the power of an arbitrator to issue a subpoena for testimony and documents implies the power to subpoena documents for review by a party prior to a hearing.  In the Matter of Arbitration Between Sec. Life Ins. Co. of Am. & Duncanson & Holt, 228 F.3d 865. 870-71 (8th Cir. 2000).

By contrast, the Third Circuit recognizes no such power. The only power explicitly stated in the FAA is to require a non-party to “attend before” the arbitrator and bring documents.  This, the court reasoned, does not allow a subpoena for pre-hearing document discovery. Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3d Cir. 2004).  You will need to check the law of your jurisdiction to determine if a third-party document discovery subpoena is allowed.

But the courts in your jurisdiction may not have addressed the issue.  It will not be very efficient for you to take a trip to court and possibly an appeal to get it figured out in your jurisdiction.  This may affect you choice of location for the arbitration in your arbitration clause if you think that third-party document discovery is likely to be important.  Or you may be able to be a little more creative, as discussed below.

Discovery: depositions

The Eighth Circuit has ruled on documents but not witnesses.   An Eighth Circuit trial court, however, has concluded that arbitrators do not have to power to subpoena witnesses for discovery depositions.  The court reasoned that production of documents is less onerous and imposes a lesser burden than does a witness deposition.  ShlumbergerSema, Inc. v. Xcel Energy, Inc., 2004 WL 67647 (D. Minn. 2004).  Of course, in the Third Circuit, for example, a deposition subpoena likely isn’t any more available than document discovery since the subpoena has to be tied to an appearance before the arbitrator – not just discovery.  This issue is open in other jurisdictions. The bottom line is this: don’t count on non-party depositions in your next arbitration. You may be disappointed.

Other avenues

Interestingly, the Revised Uniform Arbitration Act does provides arbitrators the power to require prehearing depositions and documents production, at least in the Minnesota version.  See Minn. Stat. § 572B.17 (c) and (d).  So this might provide a route for non-party discovery depositions in jurisdictions that apply the act, although that may be preempted by the FAA. Recall that the FAA preempts state law on matter involving arbitration if the dispute involves interstate commerce, which most do.  You’ll have to check your state’s arbitration act and address the possible preemption issue.

Another possibility is for the arbitrator to hold a separate hearing to take the testimony of a non-party witness and review of subpoenaed documents.   The Second Circuit recognizes an arbitrator’s power to compel testimony and documents from a non-party at a preliminary hearing.  Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567 (2d Cir. 2005). Thus, so long as the arbitrator is there, the testimony could be taken and documents provided at a preliminary hearing set up for the purpose of obtaining that information.

But consider this.  This is an expensive way to proceed that would require you to convince the arbitrator that the information is vital and this is the only way to obtain it.  And you still have the problem of a witness beyond the arbitrator’s subpoena power.  It may be possible to convene the arbitration, with the parties’ permission, in a place where the witness is subject to jurisdiction if the information is that vital.

Another alternative is to take the deposition and get the documents by agreement of the parties and witness.  If everyone agrees, the deposition can go ahead.  You can make it less expensive by taking it over the phone or by Skype or satellite.  Counsel for the parties are likely to agree to the deposition if both sides have some non-party discovery they think is important. Non-parties may be willing to cooperate if the issues are discrete and the process is not burdensome.

Efficient?

This all suggests that you may or may not be able to force non-party discovery in an arbitration.  You will want to think long and hard whether the information is really needed and is worth the cost of obtaining it. That will be on the arbitrator’s mind.  To once again quote the AAA Commercial rules, the arbitrator must seek to achieve “an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”

The bottom line is, if the information is vital to a claim or defense and a deposition or document demand on a non-party is the only way to get it, an arbitrator will likely try to find a way to help a party obtain it.  If, on the other hand, a party is simply “fishing,” it is unlikely to get much help from the arbitrator.

Up next

Litigation-like things that add to the expense of arbitration are not limited to discovery.  We will take up pre-hearing motions next.