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October 19, 2011 Articles

Discovery Subpoenas in Arbitration—Due Care Required

By David T. Lopez

The use of subpoenas for discovery in arbitration cases can be subject to significant obstacles, particularly when the discovery is directed at third parties. Practitioners must take care to consider the underlying statutory authority for the subpoenas, including the authority for effectively serving them on the potential respondents.

Generally, rules of arbitral organizations for both domestic and international arbitrations make provisions for obtaining discovery from parties, but they do not address how discovery might be compelled from nonparties.

Procedure Provided by Statutes
The Federal Arbitration Act (FAA), 9 U.S.C. § 7, provides arbitrators the authority, enforceable by a U.S. district court, to compel appearance and testimony of individuals before one or more arbitrators and to compel production at that time of any documents that might be material to the case. Recourse to the provisions of 28 U.S.C. § 1782 might be utilized to obtain aid in discovery of evidence found within the United States for use in international arbitration.

The 50 states and the District of Columbia all have enacted statutes providing for and regulating arbitration proceedings within their jurisdictions. Those statutes mostly follow the discovery provisions in the model laws, the Uniform Arbitration Act of 1956, or the Uniform Arbitration Act of 2000, also referred to as the Revised Uniform Arbitration Act. The state statutes provide the authority and means of service of subpoenas for depositions and the production of documents.

Before Drafting an Arbitration Agreement
Because arbitration is intended to provide more expedient resolution and increasing attention is directed at simplifying, limiting, or even eliminating discovery, reference to the applicable statutory provisions must be made even before the parties enter into an agreement providing for arbitration. If a party considers the need for discovery from a source other than a party to the arbitration to be significantly material, or even essential, a determination must be made of whether such discovery will be possible in arbitration, and if not, whether the risk of not having discovery might counsel reconsidering arbitration.

The text of the FAA clearly gives arbitrators the power to subpoena a witness to appear at a hearing before a single arbitrator, panel, or member of a panel, and, if appropriate, to produce documents at the hearing. Federal circuit courts are split on whether such power extends to the authorization of subpoenas compelling testimony or production other than before one or more arbitrators.

Split among the Circuits
The Circuit Courts of Appeal for the Sixth and Eighth Circuits have held that even though the FAA does not explicitly grant authority to subpoena discovery to a party outside the presence of an arbitrator, the efficiency of the arbitral process is furthered by implicitly finding such authority in the statute. Am. Fed. of TV & Radio Artists v. WJBK-TV, 164 F.3d 1004 (6th Cir. 1999); In Re Sec. Life Ins. Co. of Am., 228 F.3d 865 (8th Cir. 2000). Their reasoning has been adopted by some trial courts, for example, Festus & Helen Stacy Foundation v. Merrill Lynch, 432 F. Supp. 2d 1375 (N.D. Ga. 2006); Rogers v. Davidson Homes, No. B199193 (Cal. Ct. App. 2d Dist. June 30, 2008) (unpublished).

The Second and Third Circuits have concluded to the contrary, relying on a strict textual reading of the statute. Life Receivables Trust v. Syndicate 102, 549 F.3d 210 (2d Cir. 2008); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir. 2004). Following Hay Group, a district court in New York held that the internal rules of the Financial Industry Regulatory Authority (FINRA) could not expand the specific FAA authority to permit discovery from a nonparty. In Re Proshare Trust Secs. Litig. v. Proshare Trust, No. 09 Civ. 6935 (S.D.N.Y. Dec. 1, 2010). In Kennedy v. American Express Travel Related Services, 646 F. Supp. 2d 1342 (S.D. Fla. 2009), the court cited favorably to what it characterized as an excellent analysis in Hay Group and also distinguished the provisions of the FAA from the more generous Rule 45 of the Federal Rules of Civil Procedure.

A middle course has been taken by the Fourth Circuit, holding that a nonparty may be compelled to give prehearing discovery if there is a showing of a special need or hardship. COMSAT Corp. v. Nat'l Sci. Found., 190 F.3d 269 (4th Cir. 1999).

The disparate views of the federal courts strongly suggest that a party seeking to rely on state statutory provisions must not only carefully refer to case law but also determine whether the state provisions or the FAA will apply.

Obtaining Service May Be a Problem
Another potentially serious problem to consider is whether a subpoena issued by arbitrators can be served. Section 7 of the FAA provides that once issued by an arbitrator or panel, a subpoena is to be served in the same manner as if it were issued by a federal court. Accordingly, the provisions of Rule 45 have been held to apply both as to the manner of service and the manner of enforcement of an arbitral subpoena. In Dynegy Mainstream Services v. Trammochem, 451 F.3d 89, 94 (2d Cir. 2006), the federal appellate court held that procedures under Rule 7 do not contemplate nationwide service of process or enforcement. Each is subject to specific territorial limitations.     

In accordance with Rule 45(b)(2), the subpoena may be served within the federal district in which the arbitrator or panel is sitting, outside the district but within 100 miles of the site for deposition or production, within the state of the arbitration if a state statute or court rule allows service at that location of a subpoena issued by a state court of general jurisdiction sitting at the site of the arbitration, or otherwise as a federal statute might provide. The manner and requisite of service is specified in the rule.

A possible alternative to a territorial problem of service is suggested in Alliance Healthcare Services v. Argonaut Private Equity, No. 11-C-3275, 2011 U.S. Dist. LEXIS 87808 (N.D. Ill. Aug. 9, 2011). If records sought are beyond the territorial limitation, but the entity that controls the records is within the subpoena area, the court held Rule 45 permits the entity to be made subject to a subpoena to produce the records, regardless of where the records are located.

Nonparty Discovery in International Arbitration
Provisions for assistance to tribunals in international arbitration and for service of subpoenas in a foreign country of a national or resident of the United States are made in 28 U.S.C. §§ 1782 and 1783.

In Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the U.S. Supreme Court identified factors to be considered by a federal court in the application of § 1782, including whether the information is sought from a nonparty. Following Intel, federal courts began to allow discovery by subpoenas issued by international commercial arbitrators, which previously generally had been denied upon a narrow application of the term "tribunal." The matter appears to be unsettled, at least in some jurisdictions. The U.S. Court of Appeals for the Fifth Circuit applied as precedent the opinion in Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999), to hold that § 1782 does not apply to discovery for use in international arbitration. El Paso Corp. v. La Comision Ejecutiva Hidroelectrica del Rio Lempa, No. 08-20771 (5th Cir. Aug. 6, 2009) (unpublished). Cf. Ecuadorian Plaintiffs v. Chevron Corp., 619 F.3d 373 (5th Cir. 2010). (If requisites set in Kazakhstan are met, § 1782 may be applied.)

For a more comprehensive discussion of third-party discovery in international arbitration, see Charles Owen Verrill, "Discovery from Non-Parties in International Arbitration," 76 Arbitration 113–124 (2010).

Keywords: subpoena, arbitration, discovery, international arbitration

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