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Litigation News

Litigation News | 2020

No Nonparty Discovery in Arbitration

Frances Codd Slusarz


  • Workarounds to the rule can be limited and costly.
  • Section 7 of the FAA does not authorize prehearing discovery from nonparties. 
  • It also requires nonparties to testify in the physical presence of the arbitrator.
No Nonparty Discovery in Arbitration
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Section 7 of the Federal Arbitration Act (FAA) does not authorize prehearing discovery from nonparties and requires nonparties to testify in the physical presence of the arbitrator, according to a federal appellate court. Managed Care Advisory Group, LLC v. CIGNA Healthcare, Inc.

As this holding adopts the majority rule, the decision is not likely to cause experienced practitioners to change their litigation tactics. It is, however, a cautionary tale about the importance of carefully crafted arbitration clauses. Without one, litigants can find themselves locked into arbitration without access to critical evidence.

Disputes about Settlement Payments to Class Members

The litigation, which took place in the U.S. Court of Appeals for the Eleventh Circuit, concerned disputes about payments to healthcare providers under an agreement settling class action lawsuits against managed care medical insurance companies, including CIGNA Healthcare, Inc. In the class actions, healthcare providers alleged that insurers wrongfully rejected claims for payment.

Under the settlement agreement, class members submitted claims to CIGNA, which determined whether to pay them. Independent third-party reviewers examined denied claims and made final decisions about whether to pay the claimants. When disputes arose over reviewer rejections, some class members asserted that CIGNA interfered with the claims process to cause the rejections.

Managed Care Advisory Group, LLC (MCAG), was not a party to the settlement agreement but purported to act on behalf of class members to resolve the disputes. It agreed to arbitrate the disputes with CIGNA, although arbitration was not required under the agreement.

The reviewers did not agree to arbitrate, but the Managed Care arbitrator summoned them to participate in the arbitration hearing by videoconference. Some of the summonses required the reviewers to produce documents.

The reviewers objected to the summonses and refused to comply. MCAG moved to enforce the summonses, and CIGNA moved to strike the motion. A magistrate judge granted MCAG’s motion to enforce, which the district court affirmed on appeal by CIGNA. Next, CIGNA appealed the district court decision, arguing that Section 7 of the FAA does not authorize pre-hearing nonparty discovery.

Section 7 of the FAA allows an arbitrator to “summon in writing any person to attend before them . . . as a witness and in a proper case to bring with him . . . any book, record, document, or paper which may be deemed material as evidence in the case.” The Eleventh Circuit overturned the trial court’s decision in Managed Care, holding that “the plain language of [Section 7 of the FAA] is unambiguous in requiring witnesses to appear before an arbitrator and bring any documents with them, thus prohibiting prehearing discovery from non-parties.”

Section 7 makes no mention of whether the arbitrator can compel nonparties to produce documents or appear for depositions before the hearing. Thus, the court concluded that “the FAA implicitly withholds the power to compel documents from non-parties without summoning the non-party to testify.” Simply put, if Congress meant to confer broader power to the arbitrator, it would have done so. The Eleventh Circuit joins the SecondThirdFourth, and Ninth Circuits with this ruling.

Analyze Likely Disputes Before Agreeing to Arbitrate

“It has always been somewhat risky to rely upon nonparty testimony and nonparty documents” when making your case in arbitration, says Henry R. Chalmers, Atlanta, GA, cochair of the ABA Section of Litigation’s Alternative Dispute Resolution Committee. Knowing this risk, parties should think critically about the kinds of disputes that may arise and where to find evidence relating to the disputes. If the party expects to rely on nonparty documents or testimony, arbitration is not a good idea.

Betsey A. Hellmann, New York, NY, cochair of the Section of Litigation’s Alternative Dispute Resolution Committee, works closely with transactional attorneys to ensure the accessibility of witnesses and documents if a dispute arises. Parties must understand how the documents fit together to avoid inconsistent judgments.

Limited Nonparty Prehearing Discovery Is Still Possible

Despite the unambiguous ruling, “it is a little misleading to say you don’t get any prehearing nonparty discovery. You can get it, but it happens in a different way from what people are used to in litigation,” Hellmann explains. It takes more time and expense than discovery in court cases, and forces parties to focus on the information necessary to make their cases.

The party seeking discovery must convince the arbitrator that the information is necessary for their case and ask to open the hearing for the limited purpose of getting the necessary information. Next, the nonparty is summoned to the hearing to give testimony or produce documents, in compliance with the FAA. After the requesting party gets the needed information, the hearing is suspended until the parties complete the case preparation. This solution is unlikely to be abused because the arbitrator acts as gatekeeper and the requesting party bears the costs of the limited hearing, Hellmann explains.

Practitioners have another, far less complicated way to get prehearing nonparty discovery: voluntary disclosure. “Sometimes, the mere threat of appearing for hearing will lead witnesses to produce their documents to avoid the hearing. Some nonparties are willing to testify at a deposition,” reports Mitchell L. Marinello, Chicago, IL, cochair of the Section’s Alternative Dispute Resolution Committee. “It is notable how many will agree to give you documents or a witness statement,” Hellmann agrees.