Non-Party Document Discovery in Arbitration: Does It Exist?

This article was published in the May 2016 issue of AGC Law in Brief (Vol. 2, No. 3). It is reprinted here with permission.

Limited discovery (and the associated cost savings) is often touted as one of the benefits of arbitration over traditional litigation. Parties are generally confident that even the scaled-back discovery devices available in arbitration will be sufficient to obtain the critical documents necessary to prove and/or defend their respective cases. But what if those critical documents exist only in the hands of a third party who is not a party to the arbitration agreement? You might think, “No problem, I’ll just have the arbitrator issue a subpoena.” In fact, getting those documents may not be so simple.

Section 7 of the Federal Arbitration Act (FAA) limits an arbitrator’s authority over third parties to the following: “[t]the 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.” 9 U.S.C. § 7 (emphasis added). If a third party fails to comply, the arbitral subpoena may be enforced by petition to the U.S. district court for the district in which the arbitrator(s) sit. Id.

Because arbitration is a creature of contract, however, most courts are loath to subject individuals who have not contractually agreed to participate in the arbitration process to its burdens. As a result, the Second and Third Circuits (as well as district courts in the Fifth, Seventh and Eleventh Circuits) strictly and narrowly interpret section 7 of the FAA to hold that it does not permit an arbitrator to issue a subpoena requiring pre-hearing document production by a non-party witness. See, e.g., Life Receivables Trust v. Syndicate 102, Lloyd’s of London, 549 F.3d 210 (2d Cir. 2008); Hay Grp., Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir. 2004); Chi. Bridge & Iron Co. v. TRC Acquisition, LLC, No. 14-1191, 2014 U.S. Dist. LEXIS 103287 (E.D. La. July 29, 2014); Kennedy v. Am. Express Travel Related Servs. Co., 646 F. Supp. 2d 1342 (S.D. Fla. 2009); Empire Fin. Grp., Inc. v. Penson Fin. Servs., Inc., No. 3:09-CV-2155-D, 2010 U.S. Dist. LEXIS 18782 (N.D. Tex. Mar. 3, 2010); Ware v. C.D. Peacock, Inc., No. 10 C 2587, 2010 U.S. Dist. LEXIS 44737 (N.D. Ill. May 7, 2010). These courts hold that the only power conferred on arbitrators with respect to the production of documents by a non-party is the power to summon a non-party to attend before them at a hearing and to bring documents with him.

Not all courts are as restrictive. While the Fourth Circuit takes a similarly narrow view, refusing to enforce an arbitrator’s prehearing discovery subpoena absent a showing of “special need or hardship,” see, e.g., COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269, 278 (4th Cir. 1999), the Sixth and Eighth Circuits will enforce such subpoenas. These courts hold that “implicit in an arbitration panel’s 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 hearing.” See, e.g., In re Sec. Life Ins. Co. of Am., 228 F.3d 865 (8th Cir. 2000); Am. Fed’n of Television & Radio Artists v. WJBK-TV, 164 F.3d 1004 (6th Cir. 1999).

So what can you do if you find yourself in a jurisdiction that narrowly interprets section 7? Must you wait to review potentially critical documents in the hands of a non-party until he or she is subpoenaed to bring them to the final hearing? Not necessarily. The key to success is requiring that the non-party appear and produce his or her documents in the presence of the arbitrators. But the timing of this appearance and production is not limited to the final “trial-like arbitration hearing on the merits.” The non-party can be subpoenaed to appear, produce documents and testify at a “preliminary hearing” before the entire arbitration panel or any one of the arbitrators. The arbitrator can then adjourn the proceedings to allow the parties time to review the documents. Hay Grp., 360 F.3d at 413 (Chertoff, J., concurring). Even courts that narrowly interpret section 7 have rejected the notion that permitting an arbitrator to hold a “non-merits” preliminary hearing transforms the proceeding into a prohibited discovery device. Stolt-Nielsen Transp. Grp., Inc. v. Celanese AG, 430 F.3d 567, 578 (2d Cir. 2005); Alliance Healthcare Servs., Inc. v. Argonaut Private Equity, LLC, 804 F. Supp. 2d 808, 811 (N.D. Ill. 2011).

Below are a few practice tips:

  1. Evaluate the need for third-party documents early.
     
  2. Make the arbitrator(s) aware of the need for third-party discovery at the initial scheduling conference and build the time necessary to obtain it into the scheduling order — including the potential for a preliminary hearing and/or court enforcement of the subpoena.
     
  3. Do whatever you reasonably can to compel voluntary production. Can you narrow your document requests to make the third party more receptive to voluntary production? If not, and no other leverage exists, a reminder to the third party that he or she can be subpoenaed to produce the documents and appear before the arbitrator may well prompt the witness to deliver the documents and waive presence.
     
  4. If the third party will not voluntarily agree to produce the documents, request a non-merits “preliminary hearing” before the arbitrator(s) at which the non-party can be subpoenaed to attend and produce documents. Be aware, however, that you may not be permitted to later re-subpoena the non-party witness for a merits hearing, so be prepared to conduct any examination of the third-party witness accordingly.