Third-Party Discovery in Arbitration Proceedings

Written by: Bradley C. Nahrstadt, Partner, Williams Montgomery & John Ltd.

These days, in an effort to reduce costs and alleviate the delay associated with the prosecution and defense of civil actions, many corporations include in their contracts a clause that requires an arbitration should a dispute arise under the contract. One of the issues that often arises when the parties to the contract begin to prepare for the arbitration is whether the parties can obtain discovery from an individual or an entity that was not a party to the contract at issue. Not surprisingly, there is a split in authority as to whether a party participating in an arbitration can obtain documents from or compel the deposition of a third-party prior to the arbitration hearing.

A number of courts around the country have held that an arbitrator has the power to compel a non-party to produce documents for pre-hearing discovery. See, In re Matter of Arbitration Between Security Life Ins. Co. of America & Duncanson & Holt, 228 F. 3d 865 (8th Cir. 2000); SchlumbergerSema, Inc. v. Xcel Energy, Inc., 2004 WL 67647 (D. Minn. Jan. 9, 2004); In re Arbitration Between Douglas Brazell & American Color Graphics, Inc., 2000 WL 364997 (S.D. N.Y. 2000); Meadows Indem. Co. v. Nutmeg Ins. Co., 157 F.R.D. 42 (M.D. Tenn. 1994); Stanton v. Paine Webber Jackson Curtis, Inc., 685 F. Supp. 1241 (S.D. Fla. 1988); Complaint of Koala Shipping & Trading, Inc., 587 F. Supp. 140 (S.. N.Y. 1984); and Commercial Metals Co. v. International Union Marine Corp., 318 F. Supp. 1334 (S.D. N.Y. 1970). Most of these decisions have relied on a broad interpretation of Section 7 of the Federal Arbitration Act (the FAA), which provides that arbitrators “may summon in writing any person to attend before them or any of 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.

However, not every court has agreed that the FAA grants the arbitrators the power to compel the production of documents from non-parties. See, National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2nd Cir. 1999); COMSAT Corp. v. National Science Foundation, 190 F.3d 269 (4th Circ. 1999); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3rd Cir. 2004). In these cases, the court read Section 7 of the FAA literally and interpreted the language of this section to limit an arbitrator’s subpoena power to situations where the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time.

The same dichotomy that exists regarding the appropriateness of subpoenaing the records of non-parties also exists regarding the issuance of subpoenas for the deposition testimony of non-party witnesses. Some courts have held that arbitrators have the power to issue subpoenas to non-parties to appear for pre-hearing depositions. See, Stanton v. Paine Webber Jackson & Curtis, Inc., 685 F. Supp. 1241 (S.D. Fla. 1988); Amgen, Inc. v. Kidney Center of Delaware County, Ltd., 879 F. Supp. 878 (N.D. Ill. 1995); Liberty Securities Corp. v. Fetchco, 114 F. Supp. 2d 1319 (S.D. Fla. 2000). Other courts, using the strict interpretation followed by the National Broadcasting court, have held that an arbitrator may not compel attendance of a non-party at a pre-hearing deposition. See, Integrity Insurance Co. v. American Centennial Insurance Co., 885 F. Supp. 69 (S.D. N.Y. 1995); In the Matter of the Arbitration Between Hawaiian Electric Industries, Inc. & Hei Power Corp., 2004 WC 1542254 (S.D. N.Y. 2004); SchlumbergerSema, Inc. v. Xcel Energy, Inc., 2004 WL 67647 (D. Minn. 2004); Odfjelll ASA v. Celanese AG, 328 F. Supp. 2d 805 (S.D. N.Y. 2004).

Whether you are trying to enforce a subpoena for records or a deposition or trying to quash one, these cases are a must read.

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