August 22, 2016 Articles

Third-Party Discovery in Arbitration: Between a Rock and a Hard Place

By Anthony J. Rospert

There is no clear path to securing discovery from third parties prior to an arbitration hearing. Indeed, courts are divided on their authority to enforce third-party subpoenas issued in the context of an arbitration proceeding. In jurisdictions where the enforceability of third-party subpoenas is limited or uncertain, parties may have to consider alternatives.  

Suppose that your client is engaged in an arbitration pending in Ohio. At your request, the arbitrator issues a third-party subpoena for a witness to appear in Ohio for a deposition. The witness’s testimony and the documents requested in the subpoena are critical evidence; in fact, failure to secure the materials would put your client at a distinct disadvantage in proving the amount of damages it is owed at the arbitration hearing. The third party’s attorney informs you that the witness will not appear for deposition absent a court order. Thereafter, you cause the federal district court to issue a subpoena pursuant to Rule 45.  

The third party files a motion to quash, arguing that the district court lacks the authority to enforce the subpoena because it was improperly issued. The district court agrees, noting that Rule 45 does not in and of itself confer federal jurisdiction; rather, it provides a vehicle for obtaining third-party discovery that is tied to the existence of an action subject to federal jurisdiction. Absent such action, there is no independent federal jurisdiction under Rule 45. Accordingly, the court holds that the existence of an underlying arbitration is insufficient to confer independent jurisdiction for purposes of seeking discovery from third parties and enforcing subpoenas.  

Are you caught between a rock and a hard place, or is there still a way to obtain testimony and documents from the witness?  

This article examines two possible alternatives parties to an arbitration might consider to obtain discovery from a third party when faced with such obstacles: the Federal Arbitration Act (FAA) and state arbitration statutes.  

Federal Arbitration Act
Section 7 of the FAA offers a potential source of authority for a federal court to enforce the subpoena. It explicitly provides that arbitrators “may summon in writing any person to attend before them . . . as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case.” See 9 U.S.C. § 7 (emphasis added). Section 7 also states that  

if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt.

The FAA does not, however, address an arbitrator’s power to compel testimony or the production of relevant documents prior to an arbitration hearing.  

Circuit Split
Federal courts interpreting section 7 are divided into three camps with respect to pre-hearing document subpoenas:  

1. Arbitrators have the power to subpoena third parties to produce documents prior to the hearing (Sixth and Eighth Circuits). See Sec. Life Ins. Co. of Am. v. Duncanson & Holt (In re Sec. Life Ins. Co. of Am.), 228 F.3d 865, 870–71 (8th Cir. 2000) (holding that implicit in the 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 [arbitration] hearing”); Am. Fed. of Television & Radio Artists, AFL-CIO v. WJBK-TV (New World Commc’ns of Detroit, Inc.), 164 F.3d 1004, 1007 (6th Cir. 1999) (authorizing subpoenas to a nonparty for pre-hearing arbitration documents).

2. Arbitrators may issue document subpoenas pursuant to the FAA upon a showing of “special need or hardship” (Fourth Circuit). See COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269 (4th Cir. 1999) (allowing document subpoenas pursuant to the FAA upon a showing of “special need or hardship”).

3. No pre-hearing document subpoenas are permitted (Second and Third Circuits). See Life Receivables Tr. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210 (2d Cir. 2008) (no document subpoenas permitted); Hay Grp., Inc. v. EBS Acquisition Corp., 360 F.3d 404, 413–14 (3d Cir. 2004) (holding that a pre-hearing subpoena for documents was unenforceable).

While the circuits are split regarding document subpoenas, federal courts universally recognize that the FAA does not permit the use of arbitral subpoenas for pre-hearing depositions of third parties. As one court noted, the power to require a nonparty witness to appear at a pre-hearing deposition “would increase the burden on non-parties, by creating the potential to require them to appear twice, both for the discovery depositions and then for testimony at the hearing.” Atmel Corp. v. LM Ericsson Telefon, AB, 371 F. Supp. 2d 402, 403 (S.D.N.Y. 2005). 

Lack of Subject Matter Jurisdiction
Another limitation of the FAA is that it alone may not provide the federal district court the subject matter jurisdiction necessary to enforce the subpoena. Courts have generally held that section 7 does not confer original jurisdiction under 28 U.S.C. § 1331. See., e.g., WJBK-TV, 164 F.3d at 1007–8 (“Notwithstanding plaintiff’s averments, it is well established that the Federal Arbitration Act does not create any independent federal question jurisdiction.”). Thus, parties seeking to use section 7 must usually find another basis for federal court jurisdiction through diversity of citizenship between the party and the nonparty pursuant to 28 U.S.C. § 1332.  

State Arbitration Statutes
Alternatively, some states’ arbitration statutes enforce arbitral subpoenas for pre-hearing discovery served on third parties. For example, New York and Ohio have statutes allowing subpoenas to be issued to nonparties and enforced by the courts. Although it remains uncertain whether subpoena power extends to pre-hearing discovery in some states, such as New York, Ohio statutory law permits arbitrators to direct the taking of depositions. Ohio. Rev. Code § 2711.07. Typically, pre-hearing subpoenas may be enforced by opening an action against the third party in state court and filing a motion to compel. One potential hurdle to using state arbitration statutes is that they typically will apply only where the parties have agreed to be bound by those state arbitration rules, as opposed to the FAA.  

A Better Approach
Given the uncertainties created by federal and state laws, the best—and perhaps only—way to secure information from a third-party witness in the context of an arbitration is to compel the witness’s attendance at a preliminary hearing or the actual arbitration hearing, which is permitted by section 7 and uniformly enforced by the courts. This option forces the third party to give testimony and produce documents at the proceeding by virtue of his or her required attendance. Another potential benefit of this strategy, as one court has noted, is that “in many instances, of course, the inconvenience of making such a personal appearance may prompt the witness to deliver the documents and waive presence.” Hay Group, 360 F.3d at 413–14. So while you may be lodged between a rock and a hard place when it comes to pre-hearing discovery, the arbitration rules do provide some means for you to secure the information necessary to prosecute your case.  

Keywords: litigation, ADR, arbitration, discovery, FAA, third party  

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