Obstacles—and Workarounds—to Obtaining Third-Party Documents in Arbitration

The Problem

Section 7 of the Federal Arbitration Act (FAA) states that an arbitrator can “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 deemed as material in the case.” 9 U.S.C. § 7 (emphasis added). Respecting this statutory language, federal courts customarily prevent arbitrating parties from using a subpoena to get documents and things from third parties outside the presence of the arbitrator or panel of arbitrators. For instance, the Third Circuit has held that section 7 “unambiguously restricts an arbitrator’s subpoena power to situations in which the non-party has been called to appear in the physical presence of the arbitrator and to hand over documents at that time.” Hay Grp., Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3d Cir. 2004).

Under Hay Group, Inc., an arbitrating party cannot force a third party to hand over documents the way litigating parties do all the time. Instead, the arbitrator or panel must be present during the document handover. This means the arbitrator or panel must preside over a “mini-arbitration hearing” whose sole purpose is document production. Accordingly, there is no document production from third parties outside a hearing.

This “mini-hearing” process increases the complexity of arbitration. It also can hold up the merits proceeding; accommodating the parties’ schedules and the arbitrator’s schedule often will lead to delays. And this process can increase the costs and expenses of arbitration, especially when the arbitrator or panel must travel to the place—possibly hundreds or even thousands of miles away from where the merits hearing will take place—where the documents will be produced. 

The Workarounds

Arbitrating parties have used all kinds of workarounds to avoid these consequences. These “solutions,” which range from simple to complex, include the following:

• The document-requesting party asks the arbitrator or panel to schedule a mini-hearing, before the merits hearing, to allow for the document production. After the production is over, the arbitrator or panel “adjourns” the hearing until the real hearing on the merits begins. This solution does not avoid the expenses and inconveniences of a separate hearing devoted solely to document production. In fact, it turns on its head the promise of arbitration as a cost-effective dispute resolution procedure. But at least this document production mini-hearing process does not prolong the merits hearing.
• In a three-arbitrator case, the arbitrating parties agree to have only one arbitrator at the mini-hearing. This “solution” avoids some costs and some inconveniences.
• In a version of the classic game of chicken, the party seeking the documents gives two choices to the producing party: (1) voluntarily produce the requested documents without physically showing up at a mini hearing or (2) spend lots of time at a mini-hearing, with an arbitrator present, while the attorneys examine the requested documents. Many producing parties will recognize the embedded threat here—that they will spend time and money (and may have to pay their lawyer to appear at the mini-hearing as well) at a wasteful and expensive mini-hearing. They fold when they conclude they are better served if they produce the requested documents voluntarily and outside the presence of the arbitrator. Of course, this solution works only if the arbitrating parties all agree to dispense with the mini-hearing process.
• The parties use modern technology such as videoconferencing. Everyone—the producing party, the lawyers, and the arbitrator or panel—participates in the mini-hearing from their home locations. This is still expensive and still inconvenient, but far less so than an often faraway mini-hearing at the producing party’s location where everyone is physically present.

The Problem with the Workarounds

In Managed Care Advisory Group, LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145 (11th Cir. 2019), the Eleventh Circuit threw cold water on the last option. It held that a mini-hearing conducted by videoconferencing did not comport with section 7. Relying on the plain language of section 7, the court concluded that section 7 does not give arbitrators the authority to compel third parties to produce documents “outside the presence of the arbitrator.” Consequently, the document-producing party must appear and bring the requested documents and things to an in-person hearing before the arbitrator.

The court did not bother to consider the inefficiencies and costs of the mini-hearing process “because the policy argument does not supersede the text of the statute.”

Before we conclude that the Eleventh Circuit has undermined the potential efficiencies of arbitration, we should stop and consider whether its decision—requiring arbitrators and nonparties to be in the same physical space during a mini document-production hearing—will truly increase the costs and expenses of arbitration. In Hay Group, Inc., the Third Circuit suggested that a no-discovery-in-arbitration rule may lead to increased efficiencies and reduced costs because this admittedly convoluted procedure may force the parties “to consider whether the documents are important enough to justify the time, money, and effort that the subpoenaing parties will be required to expend if an actual appearance before an arbitrator is needed.” Hay Group, Inc., 360 F.3d at 409. Plus, as Judge Chertoff said in his concurring opinion, inconveniencing the arbitrator—after all, he or she must travel to the location of the mini-hearing—may force him or her “to weigh whether the production of documents is necessary”; accordingly, the arbitrator may refuse to approve a document subpoena in the first place.

More Solutions

Some parties in some cases may avoid the costs and expenses of seeking some “unimportant” documents from some third parties. In many disputes, however, arbitrating parties will need to review documents that are in the hands of third parties. Effective strategies to obtain those documents include the following:

1. If the third party’s documents are crucial and the FAA applies, the document-seeking party should (reluctantly) insist on a mini-hearing where the parties, the subpoenaed party, and the arbitrator all will be physically present. By following the letter of section 7, the document-seeking party might be able to force the producing party and the other arbitrating parties to blink and agree to an old-fashioned document production.
2. The document-seeking party could rely on state arbitration procedures that allow third-party discovery.
3. The document-seeking party could put the other parties and the arbitrator on notice that, at the end of the arbitration proceeding, the document-seeking party will move to recover the costs and expenses, including the substantial attorney fees and travel expenses, that it will incur by going through a quaint but burdensome mini-hearing process. It will be next to impossible to recover these costs if the producing party—and not an arbitration party—insists on the mini-hearing process. On the other hand, the document-seeking party’s chances of recovering these costs could increase if (a) another arbitration party insisted on the mini-hearing and (b) the mini-hearing was uneventful and the arbitrator provided no input or rulings to assist the parties in the process. Put another way, the document-seeking party’s ability to recover costs and expenses could improve if everyone leaves the mini-hearing asking the same question: Why was the arbitrator here?

Before choosing arbitration in the first place, consider (a) whether the claim or defense will require reviewing documents that are in the hands of third parties; (b) whether those third-party documents will be crucial; and (c) whether the governing procedural law—the FAA or a state procedural law—will allow third-party discovery. If the answers are yes, yes, and no—in that order!—consider whether to steer the dispute from arbitration to litigation.